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Wednesday, June 20, 2007

Health Insurance: Is It REALLY Worth It?

Let's consider health insurance based upon the earlier suggested considerations. Sorry this one's so long! I've been working on it for a couple of weeks now, and now it's difficult to edit it down much more.

Cost of Premiums

The cost of health insurance premiums constantly rise due to inflation and individually as we age. Through the health insurance provider I currently use, an extremely healthy single male will pay $76,935.60 in premiums from age 20-64 for health insurance with a $750 deductible. For a couple who has children at home from ages 25-49, and continues with health insurance coverage until age 64, they will pay $192,020.40 in premiums for the family throughout those years.

Cost of Insurance & Deductible in case of Use
How much will it cost to be hospitalized, with or without insurance (based upon nationwide average costs)?
  • Hospitalized for acute bronchitis - average charge: $9,888, but with my health insurance I would stand to pay $750 + 20% (up to $2,000), or $2,577.60, saving $7,310.40.
  • Hospitalized for pneumonia - average charge: $21,388. With my insurance I would pay $2,750, saving $18,638.
  • Hospitalized for a crushing/internal injury - average charge: $42,514. With my insurance, I would pay $2,750, saving $39,764.
  • Now for a real example. I have a relative who recently was in a car wreck at 70 mph. He was life-flighted to a hospital, but luckily his injuries were limited to a broken femur and a cut artery on his head. They placed a titanium rod in his leg, stitched up the artery, placed him in the trauma center overnight. The next day he was in a regular room, and the fourth day after the wreck he went home (short stay!). Two weeks later he was back to work. Luckily, my relative had insurance. The average cost of a life-flight is around $10,000. The insurance company would only cover $2,000. The bills for the rest of the hospital stay were over $56,000. With his high-deductible insurance, having to pay the bulk of the life-flight, and with co-insurance he will probably have to pay around $12,000. That's much less than the over $66,000 he would have been facing otherwise! That difference will pay for many years of health insurance!
What about doctor's visits? Consider three of our doctor's visits from this past year.
  • The first doctor's visit plus the blood and other tests were billed at $355. The insurance company allowed $163.66 of this, of which my part was $56.36.
  • The second doctor's visit was billed at $177. Our co-pay, $30.
  • The third doctor's visit with blood work was billed at $128, of which the insurance company allowed $83.32, of which we paid $50.77.
  • With insurance we paid $137.13 for the three visits, instead of $660, saving $522.87.
What about prescriptions?
  • With one monthly prescription at $50/month, with insurance we pay the first $250 of prescriptions and then 50%. With insurance we would pay $425 per year on this prescription instead of $600, a savings of $175. This doesn't take into consideration the amount saved on the prescriptions which went along with the doctors' visits.
This past year, we spent $562.13 above the cost of insurance (a total of $2,013.17 for health care). Without insurance, these same things would cost us $1,260. The cost of the insurance above the benefits it provided for this past year was actually $753.17.

Expenses in Need Without Insurance
This of course varies with what need or claim is being made. Our past year's health bill without insurance would have been $1,260. That's the health bill with just one prescription, three doctor's visits, and nothing nearly serious. That also doesn't include any physicals. Insurance would cover a physical up to $500 (for each of us) without any copay. Paying for our health needs without insurance is expensive.

Ability to Pay Without Insurance
Most people, including us, would be unable to easily pay for the cost of health care without insurance and without saving extra money just for that purpose. Especially if we were hospitalized or became seriously ill like my relative.

Ability to Self Insure
If we invested the amount we would otherwise spend on insurance (this year, $2,013.17), and paid out of the account for the cost of health care, this past year we would have invested a net of $753.17. Over 10 years, that amount invested at 5% would yield $116,953.95, which would cover the average cost of any of the top 259 causes of hospitalization. However, this type of investment would require us staying in extremely good health for several years to build such a fund. Self-insuring is mathematically possible, if we stay as healthy as the normal person and don't have any major health concerns in the next 10 years. However, I don't recommend self insuring because there is no guarantee that you will not have a major health concern for several years to build a fund. My relative in the car wreck was just 20. If he had begun building a self-insure fund two years ago, it would have been much too small to pay the bills. Additionally, if you become sick with an illness (such as a heart attack), not only will your self-insure fund be able to pay for the costs, but your illness would then be excluded from insurance coverage for several years or the rest of your life once you did get insurance! That's a dangerous risk.

Return of Payments vs. Premiums Paid In
It is very possible, feasible, and likely that we will pay in much more in premiums than we ever receive in return of payments. If one becomes seriously ill, this balance could easily shift in the other direction. Our health insurance has a lifetime payout maximum of $2 million - much more than we will pay in premiums.

Other Considerations
1 in 8 women is diagnosed with breast cancer at some time in their life and 1 in 6 men with prostate cancer. 1 in 3 adults get the flu every year, which would of course cause the health bills that year to be more with extra doctor's visits. Each year 114,000 Americans get sick enough from the flu to be hospitalized for it. With the possibility of major health problems, the unlikelihood of self-insuring, and the extra stress, insurance looks pretty good.
Additionally, many jobs provide health insurance, and pay very little more if insurance coverage is declined. In those cases, considering all of these factors, it would be foolish to decline health coverage.

Conclusion
Based upon these considerations, I believe health insurance is really worth it. It provides protection to possibly cover extremely expensive health care. Health care is one type of insurance I deem worthwhile, especially if your workplace provides health care, or provides it at a discounted rate.

Note: costs of health care gained through this site.

6 comments:

Adam said...

James,
I appreciate your work in this regard. However, also consider one other aspect which is greatly overlooked. That is the fact that hospitals and doctor's offices have two different sets of numbers, the cost for the insurance companies and the actual cost.
There was a good deal of time when I was without health insurance and had to go to the doctor (and even once to the emergency room for surgery) and I was always charged about 50% of the rates for insured individuals because of the beaurocracy of the insurance companies.
Therefore, when you pay deductables and unallowed expenses with insurance, you are actually paying the insurance companies price, and not the actual price. Even the allowable price is generally greater than the actual price. So if you simply put that money which is going to premiums and put it in a health savings account, you would still come out about even. Just a thought to consider.

Adam said...

Let me also make note of one other thing I forgot to mention before. I averaged out your payments and I think they came to about $150 per month, correct? If so I don't know where you got it, but it's a steal. I am paying over $350 per month right now, and I have a $3,000 deductable per person (myself, my wife, and son). All of us are healthy with no high risk levels for anything, but insurance around here is ridiculous.

JHDalton said...

Our health insurance is a Arkansas Blue Cross Blue Shield: Blue Solution PPO plan. Each state has different rates from Blue Cross. The rates I used for figuring are the lowest possible rates. We have a small surcharge, but it doesn't really affect the overall picture. To get an idea of the different prices of BCBS policies, check the website for BCBS in your state. Arkansas BCBS's website is here.

As to the price differences - I agree that there are differences, but our family's experience has been the opposite of what you described. Our family once had several medical bills that had not been paid by our insurance company when it went bankrupt, leaving us to pay the bills. The bills then were billed at full price instead of the insurance company's discounted price. My parents worked with the hospitals and doctors who agreed to a discounted price for an immediate cash payment, but not everyone can pay immediately. In my experience and understanding the amount the insurance company is billed is the amount a private individual is billed...but the insurance company then discounts it to their allowed price for all network doctors.

Adam said...

James,
We have BCBS as well, but GA rates must be much higher than AR. As to your point of the billing: I have gone to the same doctor both with insurance and without. Without insurance I was billed $50, with insurance it was $120. When I asked why the difference they said that because of the way the insurance companies are set up they have to charge that much (even if the insurance companies aren't the ones paying it) in order to actually cover their costs.
I think part of the problem your folks had was that the charges had already run through the insurance system, so it wasn't as though they were without insurance when they began.
I see your point concerning the helpfulness of insurance in regard to major bills. But it is frustrating to pay so much money out to people I don't know, when it's my responsible to take care of the health of my family.

Anonymous said...

It's ridiculous how much health insurance premiums have risen since 2000. Adam brings up a good point about HSAs which I think are generally a good idea if you're healthy but its never a good idea to drop health insurance all together, especially considering possible later medical underwriting. What I really would suggest to everyone is getting health insurnace through a broker, there's really no reason not to and you can even go through some online. I used www.healthplanone.com for my insurance and I'd say I really got good rates--Adam, it sounds like you're paying way too much.

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