Sunday 27th January, 2008


Buy health insurance when young

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Anti-selection is an alternative term for adverse selection, which some people find absurd. But it is an industry truth that the people who actively seek health insurance are most likely to have been adversely affected by either past medical conditions, or expenses.

Or it may be that as the signs of age creep up and we find ourselves unable to run at full throttle we stop to contemplate the effects of age and failing health.

If it is the latter, health insurance premium rates are generally higher, and often unaffordable. The irony is that young people who can get low premiums are not interested. Being unable to see beyond one’s own nose, was a favourite phrase my father would use to describe that tendency.

Dual coverage is another idea young people find absurd. Dual coverage is the concept of being covered by two different health plans. Many people misunderstand how this works. And, yes it is legal to have two health plans.

Since most health plans are co-insurance plans, it is unlikely one plan will reimburse 100 per cent of the medical bills. In addition most health plans have a dollar limit on how much it will pay.

A second health plan is useful in that it will pay some of what the first plan does not. And yes, you can submit claims to both insurance companies for the same ailment, provided you declare that fact. Then both providers will co-ordinate the claim.

But what is co-insurance? Co-insurance means the insured himself will take up a portion of the medical bill, and the insurance company will take up the balance. Typical co-insurance factors are 20-80 or 30-70. The 20, means the insurer will take up the first 20 per cent of the bill, and the insurance company will take up the next 80 per cent.

In addition you will have deductibles, which are also part of the expenses the insured will have to take up. This is a small dollar amount that the insured pays first. For example, if prescription drugs must be purchased, the insured may have to pay the first $30, in every bill.

Co-insurance is necessary because of the moral hazard involved in any system that allows the human animal to make a monetary claim. There seems to pervade in society a tendency to inflate claims or else to neglect precautions.

For example, you lock your vehicle when you park, for fear of theft. If you felt the insurance company will reimburse you for it regardless, you would not bother to secure it. That will lead to endless claims, and the insurance company will die.

Similarly, if you do not shoulder some of the concerns and expenses for your health, your claims will be endless. I recall looking at claims by people who felt they should be reimbursed for Limacol and Listerine. Such claims are frivolous and cannot be entertained.

But remember group health plans end when you leave the job or retire. You will need to have some personal insurance plan, in addition, that goes with you at least up to age 70 years—medical bills seem inevitable!

Insurance has never been about the absurdity of someone fooling someone else to make money. It has always been about pooling resources from the society by willing participants, to pay bills for those who develop the need.