Why Do So Many People Have The Wrong Kind Of Health Insurance
Of the 8 million people who obtained health insurance through the new (Obamacare) exchanges, how many still have their insurance? Apparently, the Obama administration doesn’t want you to know the answer to that question. It hasn’t released any official numbers since May. And it’s becoming increasingly clear why. Large numbers who initially signed up have since dropped out.
Previously I reported on Aetna’s estimate that by the end of this year they will have lost about 30% of their initial enrollees. Now there is a report of similar attrition out of Florida, which has apparently lost one fourth of its initial enrollees already.
So what’s the problem? In my last post I explained it this way:
“Many of the newly insured are obtaining health insurance for the first time in their lives. They don’t understand deductibles and copayments and they don’t understand why they should have to pay premiums when they are healthy – especially when they used to get care for free.”
But in addition to that, I believe there is a more basic problem: Obamacare is trying to force people to buy the wrong kind of insurance.
Stop and ask yourself why anyone wants insurance at all. In every other field, the answer is obvious. Insurance protects assets. Life insurance protects the value of human capital. Fire and casualty insurance protects homes, cars and other structures. People are willing to pay a premium to transfer the risk of a financial catastrophe to others. The same should be true in health care as well. Health insurance is a way of protecting one’s financial resources against the expense of a catastrophic illness.
But if you don’t own a house, you have no need for homeowners insurance. If you don’t own a car, you have no need for auto casualty insurance. Similarly, if you have no assets at all (other than your human capital) why would you want health insurance?
One way of assessing what people want and need is to look at what they get when they and their employers agree on a compensation package in the labor market. As I wrote last year:
McDonald’s. Home Depot. Disney. CVS Caremark. Staples. Blockbuster. These are just a few of the employers who have been offering mini med plans to their employees. A typical plan limits the health insurance benefit to $2,000. But McDonald’s, for example, gives employees the option to pay a higher premium and get $3,000 or $4,000 of coverage. Some plans have much higher benefits; for example, TennCare used mini med plans with a $25,000 annual cap on benefits.
Mini med plans typically have no deductible. They usually charge a modest copayment for physician visits and drugs. But if a McDonald’s employee goes into a hospital, the co-insurance rate is 30% and the plan’s benefit cap will probably be blown right through after the first 30 minutes of admission.
[Before continuing, let me say up front that the way mini med plans are structured is terribly wasteful. If we want them to work, we need to amend the HSA law and let employers and employees deposit $2,000 or $3,000 or even $5,000 in a Health Savings Account. Then, give the employee complete freedom of choice about how to spend the money.]
http://www.forbes.com
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