Why buying health insurance is stupid, and the problem of small sample sizes
This is just stupid.
You've probably heard of something called the "small sample size" problem. Well, if you are shopping for health care right now, that's you.
And that's why it's stupid to buy health insurance. To be more precise, I mean shopping for health insurance is a fairly futile, stupid exercise.
Insurance companies are all about sample size. The more data, the better. The more people covered, the more pooling of risk, the more they can artfully plan for anything bad that might happen. They know full well if you are a 43-year-old male, odds are 0.18% that you'll need an amputation, for example, or 2.1% that you'll have a heart attack, or 17% that you'll need a therapist. And they can plan for that. (I made those numbers up. I am not a health insurance company.)
They do this with a series of impressive actuarial analyses. Like a maestro pulling at levers on an old church pipe organ, insurance companies can cover their financial backsides through delicate pulls and pushes. Health insurance customers know these levers well. They have names like annual premium, and deductible, and co-pay, and coinsurance, and network.
Each year, someone runs the numbers and decides to raise prices by pulling each one of these levers. That helps blunt the impact of higher prices. Premiums have the most tangible impact on consumers, but they often aren't even the most expensive price hike. Which is worse: a $100-a-month premium increase, a $1,500 deductible increase, or across-the board hikes in services like urgent care visits or ambulance costs?
Who knows? You sure don't.
You are the ultimate small sample size of one. Any of of those things could be true for you. And that's why it's stupid to shop for insurance. When your company gives you a "choice," or you shop for insurance on your own through an exchange, you have no choice at all. You are playing a lottery. If you feel good about the choice you made last year, that's because you enjoyed dumb luck. Trust me, it won't last.
I'm shopping for health insurance right now because, even though my premiums went up by 22%, my health care provider and my insurance company are getting a nasty divorce, leaving me an orphan. I would stay with my doctor, who I like a lot, but there is absolutely no health care plan I can buy as an individual which covers my doctor now. So, I start from scratch.
I did what any smart consumer should do in these situations and spent a few days (!) reading up on the matter, devouring dozens of web pages and articles devoted to shopping for health care. I learned absolutely nothing. Get past the definitions of HMO vs PPO, and they all say the same thing. Nothing. I read one piece that advised consumers take stock of their annual health care costs by asking questions like, "Do you tend to have a lot of emergency doctor visits?" Well, if they were predictable, they wouldn't be emergencies, right?
Here at BobSullivan.net, we don't lie to you. So I'm telling you the truth. This piece won't help you buy insurance, either. Hopefully it'll just make you feel like you're not alone.
Let's take the most basic question facing health insurance shoppers. What's better: A high deductible plan with less expensive premiums, or a low deductible plan with more expensive premiums?
Who knows?
This year, and for several years, I have overpaid for insurance because I've been lucky. That's ok, that's sort of how insurance works. Does that mean I'll be lucky again next year? If I stay with my current plan and accept the $100-a-month increase, my deductible "only" rises from $2,000 to $3,500. Or, I could take a lower premium and go with a $6,000 deductible. Which should I pick?
We're not even talking about the long list of subtle differences among plan "choices." Urgent care visits range from $50 to $80 to not covered until the deductible is paid. There's hospital stays that cost $600 per day after a deductible, or 20% coinsurance after the deductible.
This is just silly. It's gambling, plain and simple. It's just not fair. And it's a really stupid way for America to dole out health care. Choice, in this context, if a farce.
I do understand that no one can promise me I'll either get sick or be healthy next year. I'm not asking someone to play God for me. I find this incredibly irritating for a reason: The company selling me insurance knows exactly what the odds are that I'll need that lower deductible insurance next year, or the likelihood I'll be kicking myself sometime next June when I'm forced to pay 20 percent instead of a flat $600 for a hospital stay. As I'm making these "choices," I sure wish I was on at least equal footing with the insurance company. That will never happen, because the "odds" in this content is the very core of the insurance company's intellectual property. So, we shop in the dark, while they spend billions turning our odds into their profits.
Come to think of it, shopping for health insurance is worse than gambling. At least casinos are legally bound to publish their odds. When playing blackjack or roulette, I know what my chances are. In health care, I have no idea.
And that, dear reader, is stupid.
Color-coding health care plans was supposed to help with this problem, and I admire the idea. It just doesn't go neatly far enough. If we have a fantasy that consumer choice is important in health care insurance, plans should be very consistent in their design, permitting apples-to-apples comparisons. That's also part of the idea behind essential services, so everyone who buys insurance knows at these these certain things are covered. But it doesn't go nearly far enough.
So what are we left with? A population that increasingly opts to roll the dice and accept the high deductible risk in exchange for lower premiums. And for many of them, that will work out. That's how risk works. The percentage who end up with unexpected $10,000 emergencies, well, that's unlucky for them. They will be, by definition, a minority. Consider yourself lucky if you aren't a minority.
I'm a financial reporter, and a bit of an advice giver. I'm weird; I actually enjoy learning about these things. And I'm here to say a few days of diving deep into the health insurance shopping center makes me think I'd prefer to dig pencils into my eyes. I can't imagine how I'd feel if I had an sickly child right now.
I once heard Adam Grant, author of Give and Take, explain the problem with Big Data and analytics as they are applied to human beings. Sure, it's fun to look at data over time, and spot small but important trends, like fluctuations in batting averages during weekend night baseball games. Maybe it makes sense to change the lineup based on such data. But to human beings, our lives are much more like a single at bat. Once chance. Don't tell me about your brilliant actuarial tables when all I get is one at bat.
I, like you, am living a single life, the ultimate small sample size. And so there is no intelligent way to shop for health insurance. As I said, it's stupid.
So I offer you no advice today. If you are "shopping" for health insurance right now and facing these impossible choices, all I can do is wish you good luck.
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