Friday, August 25, 2006


Gulf of Misperception

Most workers think of health insurance as benefits they can use on an almost daily basis. But reality is spreading like a bad flu these days, even effecting Fortune 500 companies that traditionally offered the richest benefits for little to no cost. Today's Wall Street Journal reveals how dramatically different today's common perception is from cold hard reality.
For many workers, it is a matter of the premiums employers require them to contribute. Last year, families paid an average $226 in monthly premiums, a quarter of the total, according to the Kaiser Family Foundation, a nonprofit health-policy research group based in Menlo Park, Calif. But many companies are requiring workers to chip in a third or more, or are no longer subsidizing the premiums of spouses or children. In those cases, participation rates drop off even more.

Sarah Landis, a nursing assistant at Children's Hospitals and Clinics of Minnesota, says high premiums are why she opted out of her health plan. While a spokeswoman for Children's, which employs around 4,000, says the not-for-profit hospital system has actually lowered employees' share of premiums to 30% of the total, from 50% three years ago, Mrs. Landis says the monthly payment of $543 is about one-third of her income. (A high-deductible family plan is available for $295 a month, and a middle-of-the road-plan is $359.)

"It's a choice between our house payment and health insurance," says 25-year-old Mrs. Landis, who has two young daughters. Apart from her husband's asthma, which requires the couple to pay $70 in prescription drugs each month, all four are healthy, she says. So when her husband left his job to become self-employed three years ago, the family went uninsured. He may take a law-enforcement job so the family can get coverage again soon. In the meantime, Mrs. Landis says, "we just hope we don't get sick."
Mrs. Landis helps demonstrate how distorted the perception of health insurance has become in today's society. Her family is largely healthy. They can't afford the premium PPO plan, so they decide to waive the insurance. If they can't have the best without having to pay for the best why settle for anything less?

But why would a health family of four need the best possible coverage? I would wager that Mrs. Landis' employer used to offer a similar plan at a substantially lower cost. And I would also bet that while the Landis family is healthy, they used to use that $10 copay a lot. The Landis family did not want the high-deductible health plan because it did not have a high enough cost-to-benefit ratio. The problem here is that the Landis family's perception of cost is tragically skewed. The millions of uninsureds in this country that have a chronic illness would be thrilled to pay $595 a month for coverage. That's because their perception of the cost of medical care matches reality. The Landis families of the world don't have a clue. Health insurance is one of the only forms of insurance that is expected to be used on a whim today, rather than bring piece of mind and protection for what tomorrow could bring.

It is imperative for the insurance industry to start changing this perception. Health insurance is no longer a free lunch. The public needs to be taught how expensive medical care is today. The public need to be taught that health insurance is like life insurance or car insurance - a strategic safety net that protects families in times of hardship. Health insurance is not a magical product that makes medicine cheaper than the average night at the movies. These concepts need to be pounded into the public's head with a 2x4. Ultimately if these false perceptions are allowed to thrive, healthy families will waive their insurance and leave the risk pool. Not only does this create an environment of adverse selection within individual plans, it also means the country will accumulate more uninusureds, who more often than not, don't have the ability to pay their medical bills. If the Landis family thinks $295 a month for a health safety net is expensive, I truly hope the never learn how wrong they are the hard way.

I see this all the time. If they can't have what they want they don't take anything.

Where does this kind of mindset come from?

I see two things wrong with this picture. You have already pointed out one of them.

Some coverage, even with a high deductible, is preferable to no coverage.

The other thing is, if $543 is one third of her income, she needs to take a second job.

Either that, or her husband needs to. I see he left a job 3 years ago but apparently it isn't working out.

These people are making some dangerous financial decisions that can only make things worse.
Fantastic point. It's not exactly uncommon that families today live beyond their means and do not properly prioritize how they should be spending their hard earned money. The relative health care bliss of the 80's and 90's is over. We need to start educating the public that healtcare is not free and they have some stake in it beyond the occaisional copay and their monthly deduction. How many people today start saving money specifically for purpose helping to pay for medical costs? I would say slim to none.

Thanks for the comments Bob!
I think it mainly comes from people not understanding the definition of insurance. People think of it as a direct payment for an equal value service, like house cleaning or buying a car. People are used to paying for something and seeing the value immediately.
People need to be educated about the definition of insurance as an aleatory contract, which means 'depending on an uncertain event or contingency as to both profit and loss.' They need to realize that it is something they buy and actually hope they will never see the value in.
Insurance is one of those rare products you buy with the hope that you never have to use it.
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