Two days ago, the New York Times published a story with the following provocative headline:
The ensuing story described certain health plans that are sold at extremely low rates, but that incorporate very high out-of-pocket deductibles. But how low is a low rate? And conversely, how high is a high deductible?
According to the article, in the 38 states that utilize the federal web site healthcare.gov, “8 out of 10 returning customers (can) buy a plan with premiums less than $100 a month …” However, such individuals may be on the hook for thousands of dollars of medical expenses, up front, before they reach their deductible limits and begin to receive claim reimbursements.
Less than $100 a month? That’s a very low rate. And thousands of dollars in expenses? That’s a very high deductible. So, on balance, are such policies worthwhile? Or are they truly all but useless?
Well, let’s think about an analogous example regarding property insurance. Suppose that you spend several thousand dollars to waterproof your beachfront home and fix some minor roof leaks this year, and that you also spend less than $100 a month on property insurance to cover the risk of severe hurricane induced flood damage. If no hurricanes strike your home, should you conclude that your flood insurance policy was all but useless this year?
On the one hand, if you believe that a property insurance policy should reimburse you for the costs of waterproofing and minor roof patching, then you might indeed conclude that the policy was worthless. And yet, if you held such expectations about your policy, you should probably expect to pay far more than $100 a month for your coverage.
On the other hand, if you believe that the purpose of your insurance policy is to protect you against the risk of a catastrophic hurricane induced flood, then you might conclude that the coverage is worthwhile even if there is no hurricane damage. In fact, you might indeed conclude that the purchase of insurance with no subsequent damage (or claim filing) represents an ideal outcome.
And if you scroll down towards the bottom of the New York Times article, that’s exactly what a health plan member with this type of coverage told the Times reporter. Josie Gibb of Albuquerque explained “It’s really just a catastrophic policy.”
Well, in reality, it’s probably a little better than that. When Josie pays for her services out of pocket, she probably pays the discounted rates that are negotiated by her health plan, as opposed to the standard rates that are charged by her medical providers to uninsured individuals.
Nevertheless, she is undoubtedly correct about the essential nature of her insurance policy. It is indeed designed to provide coverage against catastrophic illnesses and injuries, but it is not designed to reimburse her for non-catastrophic out of pocket expenditures.
Thus, it would only be reasonable to consider her plan “all but useless” if she were to suffer through a catastrophic medical event but then fail to obtain any benefits. With that in mind, what should we make of the fact that she has suffered through no such event this year?
It doesn’t mean that she wasted her money. Instead, it means that she’s been blessed with good fortune.