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Don’t be gluttonous with insurance coverage

January 4, 2014

When you eat at a buffet restaurant do you eat more than at a restaurant where you have to order from the menu? Most people eat more at the buffet. They also leave more food on their plate, perhaps because they try more foods and see which they like best. So, at a buffet, people consume more and waste more.


Last month, I wrote about insurance and showed that two principles are important:we should self-insure for anything we can — i.e., never buy too much insurance because we only get back 85 cents for each dollar we spend on insurance; and insure only for risks that are unexpected and have severe consequences.


These principles function perfectly with life insurance. Health insurance, though, is a combination of classic insurance and eating at a buffet. In other words, health insurance protects us from catastrophes in our life, but it also encourages overusing and wasting health care.


The first problem with health insurance is that it functions for most people as solely a reimbursement plan. This costs us unbelievable amounts of money because we have to spend $1,000 to get $850 of health care reimbursement. Routine health care expenses such as the cold, strep throat, heartburn, birth control, headache, broken bones, appendicitis, tonsillitis, arthritis, vasectomy and the like cost us extra money if we pay an insurance premium to cover them.


The second problem is we “overeat,” we consume too much health care when it will be reimbursed. When we were in the baby-making stage of life, one sonogram was covered by insurance. The physicians made it clear, though, that if we had any concerns at all, or if it would give us extra peace of mind, it would be easy to have a second one covered. The doctor is not opposed to going along with this because he or she happens to make more money. Under those circumstances, who wouldn’t take the extra sonogram? When I ordered some contact lenses that I will only use periodically, I was asked, “How many would you like? What your insurance will cover?” The answer to that, of course, is “sure!” Then we wonder why the premiums go up each year.


We also “waste” health care. Many patients will see a doctor for cold-like symptoms. If the doctor “prescribes” rest, saltwater gargling, and over-the-counter medication, many patients feel that they have not received adequate care. They often insist on receiving prescription antibiotics, for example, even when the doctor does not suspect a bacterial infection. In an extreme case, a patient could receive a chest X-ray, a sputum culture, a throat culture, and a full battery of allergen testing. These tests can cost thousands of dollars. Again, the doctor doesn’t want to lose a patient and happens to make out financially if the patient presses hard for extra diagnoses.


What would health insurance be like if it operated more like true insurance? First, we should self-insure against a reasonable level of routine health care expenses each year. Within our given system, the best way to do this is to have a “high” deductible so that the first $5,000 or $10,000 of health care expenses are paid for out of pocket. This has several benefits. First, we don’t lose 15 cents on each dollar. Secondly, if we are paying our own money, we are less likely to overuse or waste health care.


If given the choice between “peace of mind” for $500 for that extra sonogram or keeping the $500, many people will keep the money. We will also probably find out how much any diagnosis or treatment will cost before automatically consuming it. We might even shop around for health care like we do for every single other purchase we make. As a society, we could provide a subsidy for the poor so that a portion of their deductible might be covered for them.


We should also not “gold-plate” our policy by having it cover risks we are willing to cover ourselves. These will differ from one person to the next but might include mental health, substance abuse, or prescription drug services.


Eric B. Dent, a Lumberton resident, is a business professor at Fayetteville State University.