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ALDA & Associates International, Inc. Newsletter

May/June 2017

Why Do I Need Health Insurance? by David H. Fater

The political arena and landscape is and has been littered with the carcasses of health care legislation. Politicians and citizens believe that health care is a right- not a benefit. What started out long ago as a fairly simple issue has morphed into a political and social hand grenade with the pin pulled. As evidenced by the failure of the ObamaCare mandate and combined with the mindset of current millennials, why do people need health insurance?

We can do what President Obama could never do and state that his vision of health insurance was not insurance, i.e., not pooling against major risk. In his mind, insurance should cover routine care, preventive care, even elective care—a woman’s birth control should be covered. Anything less, he said, is “house insurance”—it covers you only against extreme costs that might force you to mortgage your house.

There is gaping irony in that vision because to pay for all the subsidies that were part of ObamaCare, the insurance policies had to incorporate deductibles and copays so high that, for routine illness or injury, having ObamaCare was the equivalent of being uninsured—except your teenage daughter is provided her birth control for “free.”

It’s important to note something else. Even if we grant sincerity to Mr. Obama’s dream of an egalitarian health-care system, ObamaCare is a fair representation of what political reality would deliver: a system in which elected politicians constantly try to woo specific voter blocs by shifting their costs to other health-care payers or to the general taxpayer. It would be wonderful if those that tinker with or design America's healthcare system actually knew something about how it works. That has been a wish but maybe with Tom Price in place, it will move more towards being a reality.

There is a gradual failure of the private insurance market. Premium costs have risen significantly faster than the rate of inflation for decades. These increases are even greater when benefit reduction is considered in the form of: denials of service, reduction in access to providers, deductibles, and copays. The entire concept of using insurance to pay for medical care is increasingly invalid. Compare medical insurance to homeowners’ insurance. Only a small portion of homes are destroyed so the risk can be easily spread among many and premiums remain affordable. With medical care, almost everyone will eventually need some amount of care, health maintenance, and prevention. In addition, there are new expensive services, diagnostics, procedures, and medications every year. Sophisticated medical care is applied to problems with marginal clinical benefit because the provider receives reimbursement and the patient, insurer and government are not able to evaluate the benefit to the single individual prospectively.

So why do people need health insurance? Why do people have homeowner's insurance? Because they cannot get a mortgage without it. Why do people have automobile insurance? Because states require automobile insurance. So why do I need health insurance without a mandate that is effective? Most people do not understand the significance of having health care insurance even if it does not not cover as much of their expenses as they would like.

 Health care claims/expenses are real indebtedness. More than 50 percent of bankruptcies are precipitated by medical events and medical debt. So it is important to understand that if an individual incurs medical expenses, that is a real debt that can be pursued for collection, affect an individual’s credit and could result in a personal bankruptcy because of an inability to pay that debt.

While the health insurance business may be really just a huge cost-shifting scheme with no demonstrable value attributed to the 20 percent of revenue skimmed off the top by the increasingly monopolistic cartel of private insurers and pharmacy benefit managers, the cost of health insurance to employers is severely compromising productivity making U.S. products less competitive in the world market. This is a prominent issue for the new administration, but let us not lose sight of what that health insurance does for those that have it. Having insurance gives an individual a HUGE pricing advantage over those that do not have insurance. This has a significant impact on the expense and the debt that is incurred. Insurance companies are able to negotiate rates with providers that are significantly less than not having insurance.  While different insurance companies may have different prices with the same provider, they are all going to be far less than not having insurance.  For an example, let’s look at a real-life example. Consider an individual that had a rotator cuff surgery in a hospital and was supposed to go home the same day. The surgery was delayed because of emergencies and the individual ended up having to spend the night in the hospital.  This individual had health insurance.  When the individual received the Explanation of Benefits (EOB), the hospital had billed the insurance company in excess of $45,000. However, the insurance company contract with that hospital resulted in the hospital only receiving $3,500. Had the individual not had insurance, there would have been a debt of $45,000. Just having the insurance saved over $40,000.

For those millennials and others who believe they are indestructible and immortal, there is a real world out there that should make one think twice about going without health insurance. An accident could occur with significant injuries, such as falling off a ladder, slipping on some ice or some other unanticipated occurrence-not to mention automobile accidents or the like. Additionally, one could suddenly find out they are inexplicably diagnosed with a life-threatening and expensive illness with no opportunity to secure health insurance. That uncertainty should make everyone think twice about going without health insurance. These are the people that are critical for the success of the system by providing premiums that initially have no costs associated with them (just like the homeowner’s or automobile insurance premiums) to offset the costs of the sick and elderly. These are the people who should voluntarily purchase insurance without being induced to by a mandate and for which the new proposed legislation imposes a 30% penalty for a lapse in coverage.

Ultimately, there are at least three reasons that you need health insurance. The first is the ability to receive medical care and know that a significant portion of the cost will be absorbed by the insurance company. The second is the ability of that insurance company to have negotiated prices that result in a significant savings to the individual and could prevent a personal bankruptcy and the damage to one’s credit that would result, not to mention other ramifications. A third reason is peace of mind. If insurance is viewed like homeowner’s insurance, it will prevent a catastrophic loss. HOWEVER, in order for this to work, it is important that everyone participate which allows the costs of the sick and elderly to be offset by the premiums paid by the young and healthy. That is why everyone has to participate.

The upshot is that everyone needs health insurance. For the system to work, everyone has to have health insurance.

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To explore the continuing impact the new Washington mindset  may have on your business or healthcare organization, please contact David H. Fater at dfater@alda-associates.com or Richard M. Cohen at rcohen@alda-associates.com or (877) 845-4657. 

 

 

 

 

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