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Even The Ideal Health Insurance Is NOT Like Car Insurance

Continuing my oddball string of non-transportation rants, there's an analogy which has been bugging me for a while now, and I just finally figured out why it's so crappy.

There's a lot of folks out there who argue that old-style health insurance really isn't 'insurance' because it pays first-dollar stuff (i.e. you get coinsured on essentially everything after you meet a small annual deductible). Car insurance and home insurance, these people say, don't pay for oil-changes and gutter-cleaning. They only cover catastrophic conditions. Fair enough. (Google on "health insurance" and "oil changes" to see how widespread this meme has become).

But then you take a look at their proposed solution - HSA's (paired with high deductible plans). You have to meet a large annual deductible, and then most stuff is covered. Sounds like a better match, right?

Except for this little problem: in both car and home insurance, the deductible is per-event, not per-year. By that metric, traditional insurance actually maps better to car and home insurance!. Hint: the 'copay' is sort-of a per-event deductible. If you visit the doctor and it costs a hundred bucks, and your copay is $20, then your insurance covers $80 (although unlike car and home insurance, it probably doesn't cover 100% of that $80). Likewise, if my roof needs a $2000 repair, and my deductible is $1000, you could call that my co-pay.

Maybe a table is a better way to present this. I'm using what I remember of my old PPO, my current HSA, and my automobile insurance as examples here.





PlanPer-event deductibleAnnual deductibleCoinsurance after reached
PPO$25$25080%
HSA / high-deductible planNONE$4000Almost 100%
Auto$1000NONE100%
Home$1000NONE100%

Clearly the high-deductible plan isn't any more like "insurance" if you define it as "how homes and autos are covered", despite the rhetoric you hear. A PPO isn't perfect either, due to coinsurance rarely being 100%, but one could imagine a similar auto/home policy being floated and still being called "insurance". On the other hand, I have yet to see an automobile insurance company ever offer a policy where you had to meet an "annual deductible" in addition to a "per-event deductible".

This entry was posted in the following categories: Economics , Politics (Outside Austin)

Comments

My dental coverage is more like the opposite of car insurance. It covers 100% of small, routine things (cleanings), some fraction of more expensive, less common things, and none of the really expensive things, like the $17,000 worth of crowns I had to pay for myself. It would be like car insurance covering oil changes but not collision damage or theft. Which would only make any sense at all if I could get a tax deduction for oil-change-insurance. Hmmmmm...

But that of course makes a lot more sense since most expensive dental procedures (not orthodontia) can be forestalled by better preventative care.

Auto insurance doesn't cover stuff that failing to change your oil would cause, either, after all. That's another case where the analogy falls apart.

If only the dentist I saw twice a year as a child had noticed the damage from grinding my teeth in my sleep in time to prevent more serious damage, I could have saved a lot of money. But it didn't work out that way. I'm not sure what the lesson is. But health insurance and car insurance are not very similar, that's for sure.

Very good reading. Peace until next time.
WaltDe

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