Those Mythical $200/Month Health Insurance Plans.... Why They're Worthless To Working Families

In the breathtakingly stupid banter that passes for political discussion at AL.com, one guy asserted this as fact: it's possible to buy an individual health insurance policy for as little as $200/month & the uninsured would rather be freeloaders than pay that "tiny" amount.

There is so much wrong with that worldview that it might take several blog posts to deconstruct it, but let me just hit the high point here....

Major Misconception:  You can buy a perfectly good family policy for $200/month

That's not just a lie, but a damn lie.  

Sure, you can buy a policy - assuming you don't expect it to ever pay out a dime until you've spent yourself into oblivion paying for your child's cancer treatment or your spouse's heart surgery.  And that's assuming those conditions weren't already excluded as "pre-existing conditions..."

Just to reassure myself that AL.com guy was indeed full of crap and our family hasn't been stupidly paying almost $1k/month for a policy that doesn't pay a dime in benefits until we pay another $5k out of pocket... I decided to check rates at eHealthInsurance.com - one of the largest and most well-known sites were desperate people shop for individual policies.

Whew!  The guy is indeed... full of crap.

Here's what I entered to shop for a policy for a family of 4:

• Husband - 51 years old, nonsmoker
• Wife - 48 years old, nonsmoker
• Daughter - 17, full time college student, nonsmoker
• Son - 15 nonsmoker

There were NO policies offered for $200 - but close.  The lowest monthly premium offered is $224. That sounds like a DEAL until you look a the coverage:

• $10,000 Deductible - the amount you pay out of pocket (excluding premiums) before the insurance begins to pay benefits. 
• Coinsurance is 20% - Even after you've paid your premiums & paid your $10k deductible, you're still responsible for $200 out of every $1000 in medical costs. 
• Office visits are not covered.  So those trips to the doctor for your kid's strep infection or that nail hubby stepped on at the construction site? Zero coverage.

So let's put this in perspective for the average Alabama family making the median household income of $42,000.  Say husband needs a heart valve replacement.  Those aren't that rare: there have been 2 in my extended family over the past 2 years.

The American Heart Association estimates that the average cost for a heart valve replacement is $164k - not including the surgeon's fee of about $5k.  So let's choose the nice, round number of $170k and see how much of that is covered by this wonderful $224/month policy:

                $170,000
  minus     $  10,000 deductible               

                $160,000 covered by insurance
  minus      $ 32,000  20% coinsurance charges

  equals     $$128,000 paid by insurance

WOW... that sounds like a lot, eh?  Well, let's look at the family's out-of-pocket expenses for this surgery:

                 $ 224 monthly premium x 12 months:

                 $  2,688  premium cost
                 $10,000 deductible
                 $32,000  coinsurance

                 $44,688 out of pocket costs for the year for one family member's health care - more than the family's total income for that year.

and remember... office visits aren't covered at all and you have to assume that at least a couple of physician visits were required to diagnose the problem and refer the patient to a specialist who would then require an office visit or two. 

Now, at first glance, you think this is a pretty good deal because they might have been on the hook for 4 times that amount without insurance.  And indeed, these are the situations that "major medical" insurance is designed for.

But how many people actually have catastrophic situations like this?  Most people go to the doctor for the flu, for the kids' strep, for high blood pressure treatment, or help with other chronic health concerns.

These $224/month policies don't help with any of that.  Economists love to cite "rational actors" - people who balance cost vs benefits & try to maximize their personal benefits... well, what's more rational than this situation?

If a family member needs regular medication & a doctor visit a month or so, that can easily run a couple of hundred dollars/month to manage a  chronic condition.  It's not outrageous for someone to decide that instead of paying hundreds for a health policy that pays NOTHING in the short term, you can save money by paying the expenses you know you're going to incur.

and remember too... we're talking about individual health policies here - not group policies - and this pricing is before they do the underwriting!  When you attempt to purchase an individual policy, the company first refers you to an "underwriter" who asseses your risk. 

• Have a family history of colon cancer?  You may find that the company won't cover you for that. 
• Have high blood pressure?  No coverage for that.
• A history of lower back pain?  No coverage for that either!

In short, they ferret out any health problem you have have had in your entire #$%$ lifetime and exclude you from coverage.  And don't think the price drops with every exclusion.  You just keep paying the same for less coverage.  Also during this "underwriting" interview, you're required to list - on the spot - every time you or a family member has been to the doctor for the past 5 years and explain what the official medical diagnosis was.

Forget a sinus infection, sprained ankle or something?  Your policy could later be cancelled because of "fraud."  Read some health insurance horror stories...

So let's go back to those uinformed people who are so willing to pass judgment on strangers.  Guys... just hope it never, ever happens to you.

On the flip, is an image of the actual quote I got for this blog post.  Read 'em & weep - like many families do every single day.