Health Insurance

We spend a fortune on health care and health insurance each year, and the cost of it keeps going up year after year. The decisions we make about health insurance and the decisions that are made for us end up impacting our lives both now as we pay for it, as well as later when we may need it and must rely on adequate coverage.

Insurance Coverage Everyone Needs

Health InsuranceHealth insurance provides coverage against certain medical expenses. It may be privately or publicly run. In all cases, certain amounts are paid out to compensate people for specifically covered medical expenses, or in many cases, will pay these claims directly to providers.

Health insurance is rather unique in that, generally speaking, it really doesn’t transfer risk very efficiently from the insured to the insurer, like other insurance schemes do. This would involve people paying premiums according to the risk they represent, which generally isn’t the case with health insurance.

There’s also the issue of the relative lack of transparency involved with health insurance, and in particular, having the costs associated with it being partly or even completely hidden from those insured.

This is certainly the case with public health insurance schemes, and many people think that health care coverage is provided free of charge to them. Of course governments don’t get their money from nowhere, and individuals do bear the cost, although they pay not by way of premiums but through taxation.

This sort of scheme is not particularly efficient, which is certainly a major criticism of public health care, although many will argue that this does not matter because even though this is not a free good, it should be treated as such, to the extent that this coverage is seen as a basic right of everyone, at least to the extent that it becomes offered to everyone.

Private health care insurance is often clouded as well, where people may think that their employer is providing the coverage at no additional cost to them. This is part of one’s compensation though of course, and therefore in all cases employees ultimately pay for this coverage.

Without this transparency though, this can lead to a sense of entitlement among the insured, looking to not just manage risk but have someone else pay for their health care, when it is they to some degree or another that bear the ultimate cost of it.

What tends to happen here is that we often lose the sense of the purpose of insurance, feeling that every incident would be ideally protected when insurance is supposed to only protect us from unmanageable circumstances as they may arise.

What Health Insurance Provides

The goal here should not be to seek coverage for all health care expenditures, or to be more exact, specific health care expenditures that are covered, as this just drives up the cost of the insurance due to inefficiencies. People pay a premium over the expected value of these expenditures when buying coverage, whether directly or indirectly, and it’s not a good idea to do that with things that you could normally manage yourself.

This over reliance on health insurance also serves to drive up the price of the covered health care services, because it serves to increase the demand, by way of the lack of transparency involved.

For example, if a certain medical expense was borne by the patient, the cost of paying out of one’s own pocket would be very transparent. If they can claim all or a portion of it, they will likely to be more apt to obtain it, even in cases where it’s not really required, or obtain care beyond what is necessary, due to a lack of understanding about how this all works. They will also be likely to buy more coverage than they really need, and use the services more often.

The health care industry itself is not very efficient from an economic perspective. Spending more does not necessarily get you better health care for example. What happens with health care insurance is that this inefficiency gets transferred to the health insurance providers and ultimately the insured, and in fact this inefficiency tends to get magnified by this coverage.

The main issue here is that health insurance ends up driving up the cost of health care in a manner we don’t see with other types of insurance, due to its pricing not generally being priced according to risk, for better or worse. There are reasons why we may want to treat health care differently though, and the task is to find the right balance here. Whether or not we do is a matter of debate.

With this said, health care coverage can be extremely important to have, and one’s life may even depend upon it. In a private system, not having neither coverage nor the means to pay may mean that critical medical care may be withheld.

One’s entire life savings can be easily wiped out from even a single medical incident, and while a lot of this may be due to the inflated costs that insurance causes, if one is unprotected, one can potentially suffer losses of the highest magnitude.

Insurance coverage is very much a matter of demand though, and if people desire excessive schemes for coverage, they will have it, whether this be by way of private of public insurance schemes.

Another huge criticism of modern health insurance is that it is so wedded to the current practice of conventional medicine that it has lost sight of one of the primary roles of insurance companies, that of encouraging prevention. Effective health care prevention is not a primary goal of traditional health care schemes, which tend to instead focuses on treatment almost exclusively.

Ideally, sound prevention would be encouraged and rewarded, but the system simply isn’t set up to do this, neither the conventional health care system nor the health care insurance that is set up to pay their claims.

Of course one can still take prevention seriously, and it is certainly wise to do so, although the problem here is that they aren’t going to see this priced in to their coverage, and in fact health insurance not only doesn’t provide much in the way of discounts here, they generally refuse to even cover such things, or any medical care that falls outside the practice of conventional medicine.

However, they really shouldn’t anyway, as health insurance used properly will protect us against what we can’t handle, not what we can, preventative medicine does not really involve undue financial hardship, it instead seeks to prevent this.

Out of Pocket Costs with Health Insurance

Some countries offer complete coverage against all conventional medical expenses, with others covering you for some things and not for others. Some countries like the United States only offer public health care coverage for certain demographic groups, the poor, the disabled, and the elderly for instance.

In many cases, one may be required to purchase health insurance privately, either directly or indirectly. Given that this can involve a significant portion of one’s income, if one does have options here, it is wise to carefully consider these options.

Many people complain of such things as deductibles, co-pays, and other out of pocket expenses that private insurance typically requires. The reason why they get put out by this is that they see health insurance coverage as a pure benefit, without considering that the cost of the benefits must be obtained somewhere.

Insurance companies aren’t charities, and they will get back every penny they pay out ultimately, plus their operating expenses, plus their profits. Otherwise, they would go out of business.

If the insurer is the government, then this is less of a concern, although some people do care about these things, out of a matter of wanting their governments to be fiscally responsible. If it’s private insurance though, you can count on the fact that the insured pay these costs ultimately.

So if you have to bear some of the costs of medical expenses, that’s actually a good thing, as in a real sense, these expenses don’t cost you extra. Now certain things do need to be insured, the big stuff, not the small stuff though, the things you cannot handle without being financially overburdened.

There are even people who will buy health insurance policies which only cover the small stuff, and of course they pay more for these services this way without realizing it, this is how deep the confusion about all of this can run.

In a real sense, all private health insurance claims bear additional cost, the same way all insurance claims do, out of necessity. However, some things are well worth paying extra for, the things that can change your life or even save it. This is what people need to realize in assessing their health insurance needs, and they also need to know the difference between the two.

Getting The Coverage You Need

Insurance is very famous for its flexibility, providing exactly or pretty close to exactly the coverage one desires for a specific price that allows all parties to benefit from the arrangement.

This is very often not the case with health insurance. If the health insurance is publicly provided, there is no flexibility at all. There is one policy for everyone and there’s no choosing.

With private insurance, there is at least some flexibility, but there may not be a whole lot. Most people get these policies through their employer, who may offer a few options or maybe none at all, as these deals are negotiated in bulk, not at the individual level like normal insurance policies between insurance companies and their clients.

There tends to be a lot more choice if one purchases health insurance on their own though, and should one seek to not be over insured, it’s a much simpler matter. As well, if people don’t see this coverage as a “benefit” like they do with mass insurance schemes, they are less likely to overuse it, and this helps keep costs down.

Ideally, we would be seeking coverage for potential hardships, paying for care we can’t afford to pay for ourselves. The closer we can get to this, the more efficient the insurance will be, and the most important thing to realize is that health insurance really isn’t any different from other forms of insurance insofar as this is the goal of it, or at least it should be the goal.

Some people might get the benefit of peace of mind from being over insured though, and psychological benefits can be as real as financial ones. This is certainly a big benefit of public health insurance where people don’t worry at all about medical expenses that are covered, even though they may not be aware of their bearing some, all, or even an excess of these costs themselves.

It is very important though that one take a close look at their coverage, and especially look to make sure that they have enough health insurance coverage. While there are some people that may not be able to afford enough coverage, if one can, and the coverage makes sense, one always ought to obtain it.

There is a lot of potential for reform in the health insurance area, and with health care in general actually, as the costs keep escalating and eat up more and more GDP each year. This is especially the case in the United States, but is the case in other countries as well.

The best we can do is assess our own situation though and do our best to make these decisions as efficient as possible for ourselves, which always involves seeking to protect ourselves against financial catastrophes, or worse, physical ones.

Health Insurance FAQs

  • How is health insurance premium calculated?
    Like with all insurance coverages, the insurer will calculate what benefits are expected to be paid out to insurers based upon risk factors and past claims, and then add in administrative costs and a profit margin to the total. With group coverage, risks are averaged out among the group and group prices are negotiated.
  • How can I lower my health insurance premium?
    The most significant way to lower your premiums is to select less coverage. We need to realize that the purpose of insurance is to pay for things you cannot pay for yourself, so if you are covered for things that you can pay for, the cost of these expenses will be higher than if you just paid for these expenses yourself.
  • How much does it cost to buy health insurance?
    In the United States, employer sponsored group coverage costs about $14,000 on average for a family plan, with the employer contributing about 70% of this. This works out to over $1100 a month if we had to pay for all of this ourselves. It might seem that the employer’s end of this is a gift to us, but if not for this expense, they could pay us this extra amount.
  • How are insurance premiums calculated?
    Insurance premiums are calculated according to probabilities of their paying out claims. If you buy private coverage, your particular risk factors will be taken into account, where you may pay more or less than average. With group coverage, the average probabilities of claims are used instead, which benefit the higher risk people but punish the lower risk ones.
  • How do I get cheap health insurance?
    If you are buying private health insurance, the way to really lower the costs is to opt for less coverage. You can especially help yourself by opting for higher deductibles and co-payments. Paying amounts that you can afford out of your own pocket is more cost-efficient as well, as you will pay higher costs over time for anything that an insurer pays for.
  • Which is best health insurance policy?
    The best health insurance policy is one that offers you the coverage that you actually need without providing you coverage that you don’t need. Paying for insurance coverage is only cost-effective if you actually get your money’s worth and are protected against things you need but could not afford otherwise, not the everyday things.
  • How much does health insurance cost a month?
    Health insurance premiums depend on several factors, with the extent of the coverage being purchased being the main one. The extent of health care coverage differs quite a bit, but typically, it costs about $500 a month for single coverage and about $1200 a month for family coverage.
  • Can you buy health insurance anytime?
    Due to new regulations in the U.S., you can buy health insurance during open enrollment periods only, from November 1 to December 15, although these dates are subject to change. Outside of this period, you must qualify for an exemption, such as a change in your family structure or your moving to a different part of the country.
  • How much does good health insurance cost?
    People usually think of good coverage as meaning more, but more is not always better when it comes to health insurance coverage and less is often better. If buying health insurance coverage on your own, there are a number of options that you can select to better tailor your coverage to your actual needs.
  • How much does health insurance cost for retirees?
    The average cost per person for health insurance coverage is about $500 per month, but as we age, the costs of health care for us rise and our premiums will rise in accordance. People who are 65 are estimated to need to spend $275,000 on health care premiums over the rest of their lives, not including long-term care costs.
  • Why is healthcare so expensive?
    A big part of the increasing costs of health care goes to the rising costs of pharmaceuticals, where drug companies spend more and more on research and development and need to make all this money back. Technology has also contributed to rising costs as more advanced and more expensive treatments have evolved.
  • How do I buy private health insurance?
    You definitely want to shop around for health insurance first, and while shopping for insurance is always a good idea, it’s even more important with health insurance given its very high cost. There are some good resources on the internet to guide you with your purchase, and most insurers allow you to purchase health coverage online.
Robert

Editor, MarketReview.com

Robert really stands out in the way that he is able to clarify things through the application of simple economic principles which he also makes easy to understand.