How More Minor Expenses Differ
With more minor expenses though, this often should not be paid for by insurance, whether one buys their own policies, are covered under group policies at work, or even in many cases where one has publicly funded health insurance.
If we have to pay for the coverage ourselves, we still may not adequately understand why this should be the case, and it’s for the same reason that people buy extended warranties on things, they just don’t think about it enough.
If the costs of the coverage are hidden from us, as is the case with both group policies and public health insurance, the fact that insuring these events are not efficient and end up costing us quite a bit more in the end will not be apparent at all, since we don’t even calculate costs in here, beyond whatever our out of pocket expenses end up being.
Health insurance for minor events do give us an opportunity to spread the costs of this out more evenly with individual coverage though, and this is clearly seen as a benefit by many people, but we could achieve the same thing simply by putting the extra money we spend on this in a savings account and manage this ourselves.
This does require a fair bit of discipline though and a lot of people lack this, although not saving for things adequately and having to borrow for them is a common affliction anyway and minor medical expenses aren’t really any different.
If we did not set aside enough money for these expenses, and had to borrow instead, perhaps we would become more conditioned to do the right thing, or perhaps not, but the worst-case scenario here for most people would be having to pay interest they perhaps should not have, but in a way that is still affordable, which is the important criterion here.
Affordability is at the heart of deciding whether an event should be covered by insurance or not, and insurance is designed to cover those events which are not affordable. While we can buy insurance to protect us against affordable events, it really doesn’t make sense to do so, and we should be looking to avoid this.
When you look at what people spend on more routine health care, and what it costs to insure against these events, we don’t even have to look at numbers to know that it costs more to insure against these things than we get back. If not, our net benefit would be the insurance company’s net loss, and the insurance company would lose more than this in fact because their operating expenses and expectations of profit would add to their shortfall.
On balance, we therefore know that we may expect to experience a net loss with insurance that is equal to the additional amount that insurers take out of the system to cover their expenses and profits. If you are spending, for instance, $5000 a year for these medical expenses, you can bet that if you want an insurance company to pay for this, it is going to cost a fair bit more, not less, and certainly not nothing.
Let’s assume that your employer pays for this and it costs them, say, $8000. This is money they are essentially giving to the insurance company rather than to you and it therefore does come out of your pocket even though most people don’t realize this.
Minor Health Expenses and Public Health Insurance
With public health insurance, it comes out of your pocket as well, although this case is different since there is no profit, but there are certainly administrative costs. Governments generally are not very efficient to start with, and these programs cost a lot of money to manage, and dealing with all the extra claims of a more minor nature does add to this cost.
Public insurance is a different animal though and is essentially a social program that does not always become treated like one. When it comes to covering minor health expenses, it does serve to redistribute wealth, as one pays into the system according to their means, with those of higher income subsidizing those who make less and pay less tax.
There are cases where even minor health care costs are beyond the means of some people to manage themselves, and these people may even be relying on public funds for the basic necessities of life such as food and housing.
In these cases, even the most minor of health care expenditures are going to be events that we do need to have a third party pay for given that they are not financially bearable, and even in countries such as the United States which mostly uses private insurance, they do have publicly funded programs to support those who otherwise do not have the means, the poor and the elderly.
Whether or not the level of care provided by these programs are excessive or sufficient is another matter, but we can say that if the concern is to make sure that people can obtain adequate health care while having the ability to pay for it to have someone pay for it, we do need to understand that one’s financial situation is going to matter a lot.
The Effect of Over-Insurance for Minor Expenses on Spending and Cost
Any time an expense could be borne by ourselves but we rely on insurance companies to pay for it, we can be said to be over-insured. The definition of over-insurance here is whenever the costs of the insurance are not justified by the benefits received, and the benefits of insurance are being able to pay for something that we otherwise would not be able to manage.
This does not mean selling your house and living at a homeless shelter to pay your medical bills, as that would be way beyond what we would consider being able to bear, as we’re talking about the absence of serious financial consequences and this would be very severe.
A good rule of thumb here is if we are benefited from the insurance after we properly take into account the added costs of it, like for instance our guarding against losing the entire value of our home would be worth paying more for because this would simply be an unacceptable fate.
If we’re spending this $5000 on minor medical expenses a year, and with health care expenses this would be a minor amount, it is not a matter of spending the money or not, it comes down to whether we want to pay for this out of pocket or pay considerably more on an installment plan, which is what the insurance in this case ends up being.
The installment plan really makes no sense though, although the insurance companies love it and make a lot of money from this type of coverage. The net effect is that, from this alone, we pay quite a bit more for this care then if it were not insured.
What insuring these expenses also does is drive up both demand and price, because consumers become at least somewhat distanced from the purchase. This is similar to people eating more at an all you can eat buffet, they pay a fixed price and further plates of food are not perceived as costing any more.
This causes people to seek out medical care that may not always be necessary, and often is not, and they also may be encouraged by their providers to overdo things. People who go to the doctor for the common cold is a good example of this, they don’t really get any effective treatment but may end up getting prescribed antibiotics instead, which is pretty common, without even having an infection, which causes a negative health effect.
This is just one of a great many examples of how people not paying for something themselves can lower the threshold of spending and lower it considerably. All of this serves to increase health care spending quite a bit of course and also raises the prices as well, because more demand with a given supply will do that.
The best way to appreciate this is to consider that if we did not have insurance for these things, and people had to pay the whole thing, they would be more selective with their spending, and also shop around a lot more, as people tend to do. We may think that insurance companies have our back here but it is well known that they are less diligent than individuals and with insurance comes higher prices as well as more spending overall.
We are therefore doing ourselves a disservice in having minor health care expenses covered by insurance, and we should always welcome the ability to pay more out of our own pockets, and ideally pay for the whole amount of these expenses and instead be covered by major medical plans which only deal with the big stuff we cannot manage.
In a public setting, we should welcome user fees for those with the ability to pay them, anyone but very low-income people in other words, and realize that by looking to prevent over-use of the system, everyone benefits.
Nothing of a minor nature should ever be covered by any insurance, and minor medical expenses should only be covered for those who truly do not have any other alternative, which is the situation where insurance makes sense, where there is no other good choice and we need to pay the added cost of it to protect ourselves.