When Health Insurance is Only an Illusion

Right now, it appears that the biggest barrier to health care reform is people who think that it will hurt them. According to a New York Times poll, “69 percent of respondents in the poll said they were concerned that the quality of their own care would decline if the government created a program that covers everyone.” Since most Americans currently have health insurance, they see reform as a poverty program – something that helps poor people and hurts them. If that’s what you think, then this post is for you.

You do not have health insurance. Let me repeat that. You do not have health insurance. (Unless you are over 65, in which case you do have health insurance. I’ll come back to that later.)

The point of insurance is to protect you against unlikely but damaging events. You are generally happy to pay premiums in all the years that nothing goes wrong (your house doesn’t burn down), because in exchange your insurer promises to be there in the one year that things do go wrong (your house burns down). That’s why, when shopping for insurance, you are supposed to look for a company that is financially sound – so they will be there when you need them.

If, like most people, your health coverage is through your employer or your spouse’s employer, that is not what you have. At some point in the future, you will get sick and need expensive health care. What are some of the things that could happen between now and then?

  • Your company could drop its health plan. According to the U.S. Census Bureau (see Table HIA-1), the percentage of the population covered by employer-based health insurance has fallen every year since 2000, from 64.2% to 59.3%.*
  • You could lose your job. I don’t think I need to tell anyone what the unemployment rate is these days.**
  • You could voluntarily leave your job, for example because you have to move to take care of an elderly relative.
  • You could get divorced from the spouse you depend on for health coverage.

For all of these reasons, you can’t count on your health insurer being there when you need it. That’s not insurance; that’s employer-subsidized health care for the duration of your employment.

Once you lose your employer-based coverage, for whatever reason, you’re in the individual market, where, you may be surprised to find, you have no right to affordable health insurance. An insurer can refuse to insure you or can charge you a premium you can’t afford because of your medical history. That’s the way a free market works: an insurer would be crazy to charge you less than the expected cost of your medical care (unless they can make it up on their healthy customers, which they can’t in the individual market).

In honor of the financial crisis, let’s also point out that all of these risks are correlated: being sick increases your chances of losing your job (and, probably, getting divorced); losing your job reduces your ability to afford health insurance, either through COBRA or in the individual market; if your employer drops its health plan, that’s either because health care is getting more expensive (meaning harder for you to afford individually) or the economy is in bad shape (making it harder for you to get a job that does offer health coverage).

In addition, there is the problem that even if you are nominally covered when you do get sick, your insurer could rescind your policy, or you may find out, as Karen Tumulty’s brother did, that your insurance doesn’t cover the treatment you need. But while important, this is a second-order problem. The first-order problem is that as long as your health insurance depends on your job, your health is only insured insofar as your job is insured – and your job isn’t insured.

The basic solution is very simple. In Paul Krugman’s words: “regulation of insurers, so that they can’t cherry-pick only the healthy, and subsidies, so that all Americans can afford insurance.” I know that there are lots of details that consume people who know health care better than I do, and I know those details are important. But as an individual who is worried about his or her own health insurance (and that is the point of this post), that’s what you want. You want to know that if you lose your job, you won’t be shut out because you’re too sick,*** and you won’t be shut out because you’re too poor.

But we won’t get there as long as people remain convinced that health care reform is for poor people. It’s for everyone – everyone, that is, who isn’t independently wealthy or over the age of 65. Because all of us could lose our jobs. (Have I repeated that point enough?)

Now, I admit that if you are over 65, health care reform is not for you, because you are in the one group in our society that enjoys true health insurance – insurance that you cannot lose, that is paid for by taxes, and that is effectively guaranteed by the government. So maybe there’s nothing in it for you, except perhaps an improvement to the prescription drug component of Medicare. But I cannot believe that, as the only people who have reliable health insurance, you would oppose health care reform that would provide reliable insurance for the rest of us.

* This doesn’t necessarily mean that all those people lost employer-based health coverage because their employers dropped their plans; some of it could be that the employee contributions were increased to the point where they couldn’t afford it anymore. 1.1 percentage points of the shift is due to people becoming eligible for Medicare or military health plans.

** If you lose your job, or you get divorced from a spouse through whom you get health coverage, you are eligible for continued coverage under COBRA. However: (a) this only necessarily applies if your employer has 20 or more employees; (b) you have to pay the full, unsubsidized cost of your health plan, which can be particularly difficult after losing your job; and (c) it only lasts for eighteen months.

*** I said earlier that insurers can’t charge premiums that are less than the expected cost of your care unless they can make it up on the healthy customers, and they can’t in the individual market. But if all insurers are prohibited from doing medical underwriting (pricing based on healthiness), then they will all have to overcharge the healthy customers, and the system could work. This is still a tricky issue – and single-payer (like Medicare) would be much simpler – but it can be made to work even in a competitive market.

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About James Kwak 133 Articles

James Kwak is a former McKinsey consultant, a co-founder of Guidewire Software, and currently a student at the Yale Law School. He is a co-founder of The Baseline Scenario.

Visit: The Baseline Scenario

2 Comments on When Health Insurance is Only an Illusion

  1. The ‘innovative’ idea of a ‘pay for value / outcome’ pack came after the CBO had previously pointed out this health care reform wouldn’t work without ‘fundamental’ change in the out of date system. It is said that as much as 30 percent of all health-care spending in the U.S. -some $700 billion a year- may be wasted on tests and treatments that do not improve the health of the recipients, and this 700 billion dollars a year can cover a lot of uninsured people.

    The expected Benefits of this ‘innovative idea’ are as follows ;

    1. Meet the objective of revenue-neutral.
    Supporters of the agreement say it could save the Medicare System more than $100 billion a year and ‘improve’
    care, that means more than $1trillian over next decade, and virtually needs no other resources including tax on the
    wealthiest. Supposedly even the ‘conservative’ number of such savings might be able to meet the objective of

    2. Quality and affordability.
    If you are a physician, and your pay is dependant upon your patient’s outcome, you will most likely strive to
    prescribe the best medicine earlier in the process, let alone skipping the wasteful, unnecessary risk-carrying

    3. No intervention in decision-making.
    The innovative idea of ‘a pay for outcome’ will more likely prompt team approach and decision, as at Myo clinic.
    Under the ‘pay for outcome’ pack, for good reason, best practices as ‘recommendations’ would simply help them
    make a better decision, and the government won’t still have to meddle in the final, actual decision-making
    process as a non-expert.

    4. Speed up the introduction of IT SYSTEM.
    The pay for ‘Outcome’ pack is most likely to expedite the introduction of Health Care IT SYSTEM.
    The synergy effect of the combined Health Care IT & a pay for ‘outcome’ system may allow the clinicians to
    ‘correctly’ diagnose and effectively treat a patient earlier in the process so that it can measurably scale back the
    crushing lawsuits and deter the excuse for unnecessary cares to make fortunes.

    5. Accelerate the progress in medical science, in return, it saves more cash.

    6. Settle the regional disparity.

    7. Reduce the emergency room visits & save immense costs.
    Public health insurance plans such as Medicare and Medicaid paid for more than 40 percent of U.S. emergency
    room visits in 2006, according to government figures released recently. Many experts say reducing these hospital
    visits would be an important way to lower the enormous, and growing, expense of U.S. health care.

    I share the opinion that unlike the insurer-friendly senate plan by ‘some’ members, only a strong public option will be capable of getting the premium inflation under control and saving the U.S in turbulence.
    To my knowledge, a dual system tends to deliver better results than a pure single payer system. Supposedly, to be or not to be might be up to the innovations like a pay for value program, otherwise, the forthcoming start-ups may fill the void with competitive deals. The competition based on ‘fair’ market value would be a beauty of true capitalism, not monopoly, an objective for anti-trust.
    Thank You !

  2. According to the scoring of CBO on the prevention & wellness program, all fitness centers around the world should close down immediately and all media have to end reporting health tips about prevention.

    Immune System & Levee System :

    All of the excellent health systems seem to have one thing in common, a expansive, systematic preventative program requiring immense investments. I think a prevention system works as a ‘levee’ built against flood by the government, similarly, it also needs non-profit investments from the government ‘on a large scale’.

    This might offer us the clue of why all of the free states have public insurance policy in place.

    It won’t be easy to draw some specific numbers on the economic effect of the ‘levee’ , but the flood measure lacking a stable ‘levee’ would be a house on sand, as the too high level of ‘preventable’ chronic diseases in America shows.

    At present, about 75 percent of each health dollar goes to treating chronic conditions.
    When tests reveal patients are at risk of a chronic disease, physicians have no benefit to help them make necessary changes to stay healthy. Rather, the system today is designed around treating patients once they become sick.

    If current health care system could shift a small percentage of total spending into programs that help prevent people from getting sick in the first place, it would dramatically reduce the overall cost of care.

    Thankfully, the health care reform bill currently before Congress makes several key investments in preventive care, and those pieces of the PUBLIC OPTION must be maintained.

    “An ounce of prevention is worth a pound of cure.”, said Benjamin Franklin , and ‘Early Detection’ goes beyond monetary value as we see the recent case.

    As far as I’m concerned, the congress affected by the special interests has impeded the budget request for prevention program in Medicare & Medicaid. Let’s imagine the costs and invaluable lives following the levee breach.
    Time is ripe for CHANGE !

    Thank You !

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