Money Laying on the Sidewalk
For years I had some kind of corporate health plan. When I started my own business, I bought a Blue Cross plan that roughly mirrored the corporate health plan I used to have -- very low deductible, lots of coverage. And it had very high premiums.
So I finally got serious and went out and did something 99% of Americans never do or never have to do: I went out and really researched my health care options. And what I found was that to raise our family's deductible from $500 a year to $2000 a year would save me over $3000 a year in premiums. In fact, if I switched plans, I would get just as high of a maximum payout and I would get a better gaurantee on future pricing and a commitment never to drop my coverage from a large, well-rated insurance company.
There's an old joke about an economist and another fellow walking down the street. There was a $10 bill laying on the ground, but the economist just walked right past it. The other fellow said "what are you doing, you just passed up $10." And the economist replied "It can't be a real $10 bill, because in an efficient market someone would have already picked it up."
That was my reaction to my health care options. I asked my broker, "you mean that if I increase my deductible $1500 I can save $3000 a year? Even in a worst case year I am better off, and in a healthy year I am MUCH better off." He replied "Yep." I asked, "But why doesn't everyone do this?" He just shrugged. As my Harvard investment management professor used to say, as he wrote up a market situation on the chalkboard to begin each class, either this is an opportunity, of there is something we don't understand. As I have gained more experience with my new health plan, I have become convinced it is the former.
McQ over at Q&O has a great post on insurance vs. insulation. I won't quote it all, but it is well worth your read. Towards the end, he quotes John Stoessel on my particular conundrum:
But people are so conditioned to expect others to pay their medical
bills that they hate high deductibles: They feel ripped off if they
must pay a thousand dollars before the insurance company starts paying.But high deductibles may be the key to lowering costs and putting you in charge of your health care.
I am absolutely convinced that the best possible step for US health care is to expose more users to the market and price-value trade offs, while providing high-deductible insurance that shelters people from bankrupting unusual events. More here, here, and here.
Reformed Repulican:
My company provides an option for a high deductible plan with coupled with an HSA. Contributions to the HSA are optional, but the company contributes some every year. I agree that it is a much better plan. It is also more in line with actually being insurance, since it does not do much for simple sickness. It is only used when health expenses in a year are exceptionally high.
I do get a lower, negotiated rate with In-Network doctors as well, compared to what I would pay with no insurance.
October 3, 2007, 11:01 amJeff:
After looking at the options offered by our employers, we made the exact same decision (high deductible + HSA) for our family. And my wife works for a very large health insurance company.
October 3, 2007, 11:50 amfranco:
Same here - high deductible + HSA. It does change behavior. When I had to pay $176 for a subscription out of my pocket I quickly found an option that cost me only $15. Also, I don't know how many times I've tried to explain to my wife that they can't cure the common cold so don't take the kids in for that. Before it wouldn't have cost me anything (explicitly) to take the kids to the doctor and I wouldn't have cared. Now I care.
October 3, 2007, 12:09 pmTim:
I thought you had to be self employeed to qualify for the HSA? Does anyone know for sure? I think they are a fantastic idea though. I tried to explain them to some friends and they just got really angry suggesting that anyone would want to pay $5000 out of pocket a year. Of course, all pretense of rationality was out the window, I tried to explain that if they did not get sick it would be money in the bank and a nice savings plan to boot. It fell on deaf ears. It bugs me that people just can't *get* it. I wonder how we(healthcare consumers) wound up being bent like this?
When I started my first company I looked into heath insurance for myself. This was before HSA's and if memory serves Insurance was in the $200 range (I was 23yrs old) I decided that I had better things to spend 2400$ a year on and went without insurace for about 5 years. I think I got sick 1 time and I was hit by a car while on my bicycle. The 2 bills couldn't have cost more than $1500. I Think I made out like a bandit.
My only problem is that you don't get discounts when paying cash. I have found that it actually costs more? Does anyone else have a datapoint on this? My assumption was that you didn't have some big insurance company squeezing the provider for a discount so you got charged full fare...
October 3, 2007, 12:43 pmfranco:
That is correct. With a high deducible plan even though you are paying for the things yourself you only pay at the insurance company's prices. For instance, a hospital may charge someone $8.00 for an aspirin tablet, you may pay 50 cents. W/o some form of insurance they'll totally hose you on pricing which is the real injustice in the system IMO. This is especially the case with emergency medicine where you can't really shop around in advance.
October 3, 2007, 1:42 pmCraig:
Tim,
October 3, 2007, 2:17 pmAnyone can purchase a high-deductible health plan, and thus qualify for an HSA, not just the self-employed.
ColoComment:
There are several key factors that make the HSA concept the preferred choice, among those now available, for those who choose self-responsibility: 1) They choose what care they will spend their money on, and when; 2) They only pay for the health care that they use; 3) they enjoy the available tax advantage; and 4) the HSA funds may be carried over from year to year.
To expand: when you pay for traditional coverage, you are paying for not only the health care services that you use, but also what is used by others in the pool, less the applicable co-pays(which are so low as to be a joke for the most part). With the HSA, if you pay for your health care with those set-aside funds (which are yours, by the way - YOU own the money in the HSA), you're paying only for what services YOU use. Your post-deductible coverage then is truer to the original insurance concept that addresses unforeseen, very expensive costs that you may not be able to pay for out of personal cash flow or savings (more like homeowners insurance.)
With an HSA when you visit a health care provider, they submit that claim to your insurance company (just like traditional insurance), and you will receive an EOB that details the agreed-upon cost of that care, and how much is discounted, paid for by insurance, or is your responsibility. Then you'll get an invoice from the provider that you pay. So, although you are paying "cash," you still enjoy the benefits of "discounted" charges. (I put that in quotes, because, as we know, there is NO free lunch. Never has been, never will be.)
Finally, the HSA is a great improvement over the flexible savings account (FSA), where you had a certain amount deducted from your paycheck that could be used for medical costs, but any funds that were not spent were FORFEITED. Crazy. Who in his right mind would do that more than once, unless he had a very accurate estimate of what his expenses would be?
I've had an HSA now for two years (I'm in the second year) with maximum contributions each year. In 2006 I used up almost every dollar; here in 2007, I've got a fund of several thousand dollars built up. For me to spend on MY health care as I choose.
Just think, if the Dems had been willing to entertain any discussion whatsoever on the topic, we could be doing something similar with Social Security. Ah well.
October 3, 2007, 2:29 pmKnucklehead:
My company has a high-deductible plan and then refunds a portion of the deductible. Personally I'm all for high-deductible plans. People regularly put their autos in for service several times per year at $300 or more each time and don't blink. Tell them they MIGHT have to pay $1000/yr. for their medical bills and they go bonkers. I've never understood it.
October 3, 2007, 3:36 pmKnucklehead:
My company has a high-deductible plan and then refunds a portion of the deductible. Personally I'm all for high-deductible plans. People regularly put their autos in for service several times per year at $300 or more each time and don't blink. Tell them they MIGHT have to pay $1000/yr. for their medical bills and they go bonkers. I've never understood it.
October 3, 2007, 3:38 pmnicole:
I'm 23 and a contract employee, so I spent a few months with no insurance and then, out of fear of the chance of something truly catastrophic happening, got a high deductible plan. Next year I am going to be looking for a "real" job, but I absolutely do not want traditional benefits. My premium is only $169 a month, and that includes dental and a big bump in cost for being a smoker. But how good does it feel to know I have actual insurance and not just prepaid health care - I feel like I'm doing the right thing while everyone else is complaining about how the state should pay for things that aren't even diseases (I'm not sure how you would insure against, say, a planned pregnancy). I'm actually happy to pay the extra amount as a smoker - it's only fair. I get to have an HSA, which is great, and I get the negotiated price on prescriptions (which I get to pay for pretax through the HSA), and I don't waste a lot on coverage I don't need.
I am such an evangelist among my friends for high deductible plans. Unfortunately it is really hard to convince someone that has what would traditionally be called "good insurance" that they have more than they need, and that it's wrecking the healthcare system for everyone.
October 3, 2007, 3:41 pmMesa Econoguy:
We just switched to a nearly identical plan (high deductible + tax-deductible HSA) and it is outstanding. I have adjusted prescription buying/usage along the identical lines above, and was a very fortunate to have taken advantage of emergency procedure coverage.
Our deductible and consumer ownership percentage went up significantly this year, and we adjusted accordingly. Rational economic behavior.
Clueless Democrats have a vested interest in not allowing this kind of financial flexibility, because it gives them job security for damn near eternity, and it’s a real easy sell to the state-school-uneducated masses.
October 3, 2007, 6:29 pmHesse:
Unions have led the charge for comprehensive no/low deductible insurance. Cradle to grave security is mandatory for union and government employees, so no out of pocket allowed. Since unions have kept the Democratic Party in business all these years, you know democrats will always go for the quasi-government solution, cradle to grave plans. The tragedy is that democrats want to keep ordinary voters from learning all of their options. They want to make sure to grow their own constituency any way possible--that means more government workers and bureaucrats, ever more spending, more public employees union members.
October 3, 2007, 10:59 pmKnucklehead:
Some further comments, taken from relatively recent experience, concerning medical insurance and the costs of medical care.
Not quite a year ago I, while fully insured with a good, corporate, low deductable plan, I spent 36 hours in an emergency room with associated testing and such. The bill was just short of $18,000 - call if $500/hr. for emergency room care for my particular affliction. The insurance company took the $18,000 and immediately cut that in half, the cost to them was $9,000. I was responsible for $500 of that. (these are all round numbers).
The point of mentioning the above is to note that had I been uninsured the full bill would not have wiped me out (it would have been painful!) but I would not have had the 50% discount that the insurance company receives. I would have been responsible for the full amount.
On to the next point. I now had a "pre-existing condition" which potentially matters when one needs to change insurance. Some months following the above incident I found myself unemployed. Given the pre-existing condition I thought it prudent to maintain COBRA coverage. Covering a family of four with full med, dental, eye, and prescription coverage is around $1200/month. As far as I could determine I could not have secured any insurance that would have covered my "pre-existing" condition. Since I maintained COBRA (i.e, group coverage) I could not be denied access, even for the pre-existing condition, to the new group coverage when I went to another employer.
Which is all to say... I'm not sure what. I am not the least bit opposed to having true insurance rather than "insulation". I recently took a fall that wound up costing me $300 to get myself adequately diagnosed and sent on the path to repair. That is not a major cost and we all spend that much and more having ordinary maintenance done to our cars.
Just tossing some numbers out. Personally I believe there are 4 major issues that need to be resolved if we are to gain control of medical costs without going the socialized medicine route with all the rationing and inefficiencies that seems to cause.
The first, as noted in this thread is switching from "insulation" to insurance"; high deductable insurance meant more to cover catastrophes and truly expensive events rather than to shield us from spending, for example, $300 to get a wheel diagnosed and repaired.
Next we need to find some way to figure out what the true costs are - are they the $18,000 I was billed or the $9,000 the insurance agreed to pay. Should I have paid the $300 for my repairs or $600? I certainly don't know but I suppose the answer is somewhere in the middle. I suspect that having real insurance rather than insulation might help the magic of the marketplace move us closer to true cost/pricing.
Next is controlling liability. We need to stop digging into everyone else's pockets just because something painful and unfortunate happened to us. We get sick, we get injured, accidents happen, diseases and defects and mistakes are part of life. Negligence is another matter, of course.
Lastly we need to accept that if we want the supply of medical services to be larger so that the costs can be smaller then we need to make entry into medical services easier and less expensive for those who would do the job for us. We need to revise how we go about training and credentialing medical services providers.
And just for discussion I'll toss up a thought... perhaps some portions of medical services infrastructure (hospitals, some diagnostic centers such as cat-scans, x-rays, etc) might be more properly treated as public infrastructure such as roads and bridges and the like.
October 4, 2007, 8:03 amPatriot:
Thanks for posting.
October 4, 2007, 9:13 pmMont:
Knucklehead wrote:
"And just for discussion I'll toss up a thought... perhaps some portions of medical services infrastructure (hospitals, some diagnostic centers such as cat-scans, x-rays, etc) might be more properly treated as public infrastructure such as roads and bridges and the like."
Uh, I thought the whole point of the post, and of this blog for that matter, is to get the "public infrastructure" off of our asses and to carry our own weight.
That said, I recently switched from a $5000/year catastrophic plan to a $1700/year HSA and saved $30/month in premiums. At the rate I'm saving, in three years I'll have two years worth of deductibles saved up. If I go to a PPO I get a discount of around 35%, However, the full price is applied to the deductible.
Some people look at me like I'm crazy when I tell them I want nothing to do with socialized medical care. Sadly, most of them think it's a right and that they're owed it.
October 8, 2007, 9:34 pmprathika:
Hi,
October 10, 2007, 4:57 amWhat about that money? Ever gotten that view from others that you only think about moneybroker Do not worry. Money is not the root of all evil, it is actually a good thing.Do you want to make more money? is what you should be looking to do. Investing money in moneybroker advice is going to help you.There so many good things that can be done with moneybroker so money in it self is NOT a bad thing and if you ever thought that, think again.
SHUBHI:
I think its stupid .......
June 18, 2008, 8:42 pmSTUPID FELLOW