Gerard J. Gianoli, MD, is an otologist in private practice in Baton Rouge, La., and is Clinical Associate Professor in the Department of Otolaryngology-Head and Neck Surgery at Tulane University School of Medicine.
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April 2007Just when I discovered the meaning of life, they changed it. George Carlin
Modern economic theory tells us that people will do whatever they perceive is in their own best interest and that people are rational decision-makers. If this is the case, why do more than 40 million Americans forgo health insurance? Are all these people irrational? As I previously reported,1 nearly half (20 million) of those who don’t have insurance are without insurance for less than four months while between jobs and are covered retroactively by COBRA laws-although they are technically listed as having no insurance. What about the other 20 million? Excluding illegal aliens (10 million) and the Medicaid undercount (5 million), there are about 5 million or so American citizens who choose to not purchase medical insurance. I propose that most of these people are not crazy and are acting rationally.
Let’s examine this proposition.
Why Have Insurance?
Insurance is a fiscal instrument. The purpose of any insurance is to cover unexpected and catastrophic financial costs. In other words, one of the main purposes of insurance is to protect a valuable asset or your net worth. In the case of automobile insurance, the asset you are protecting is your car and any liability you may incur with its operation. Without automobile insurance you would be at risk of losing your car and possibly your entire net worth if successfully sued. In homeowners’ insurance you are protecting the value of your home in the event of a catastrophe that destroys your home. Without homeowners’ insurance, most would not be able to replace their most precious asset. The purpose of health insurance is to provide money for an unplanned, extraordinary, and expensive medical expense.
If a choice must be made-which it is by many Americans who do not have health insurance through their job-many Americans with low net worth are probably making the financially rational decision to forgo health insurance.The median American net worth calculated with the 2000 census was $55,000, and $13,473 when excluding home equity. The premium of the least expensive high-deductible ($6,000 deductible) policy for a family of five is $6,400 ($533/month) from one of the more reputable insurance companies in my state. If I had a net worth of $13,473 (net worth excluding home equity, which may not be at risk, as noted below), why would I pay $6,400 per year to protect it? Keep in mind that half of all Americans have a net worth of less than this. In two years I would have paid out my net worth in premiums. For that matter, does it make financial sense to pay $6,400 per year to protect $55,000?
Objections to Being Uninsured
Two major objections to forgoing health insurance are typically cited:
Objection #1: I won’t get emergent health care.
Unlike homeowners’ insurance and automobile insurance, you would still receive medical care even without health insurance. If you don’t have insurance and total your car or your house burns down, no one will buy you a new car or house. But regardless of your insurance status or ability to pay, your acute appendicitis will be swiftly treated. As most physicians are aware, no insurance does not mean no health care. EMTALA [the Emergency Medical Treatment and Active Labor Act] ensures emergency care for all regardless of ability to pay.
If you knew someone would buy you a new house if your house burned down, would you purchase homeowners’ insurance?
The obvious concern (among the fiscally moral among us) is: what about the hospital and doctor bills? There are a number of ways this can be dealt with. If the patient has enough money to pay the bill, he or she can simply pay it. If not, the patient can pay on an installment basis. Most hospitals and physicians’ offices will not send patients to a collection agency if they faithfully pay at least small installments on their outstanding balance.
For those unable or unwilling to make even small installment payments, there are other ways of dealing with the debt. Most hospitals and doctors’ offices will not press the issue of nonpayment of services beyond a collection service. The only consequence to this patient will be some harassing phone calls and a poor credit rating. And finally, for those who have large debts that seem insurmountable and the hospitals and physicians are pounding on the door for their money, there are basically two options: bankruptcy or litigation.
One and a half million Americans filed for bankruptcy last year. Almost 80% filed for chapter 7, which allows for complete dismissal of virtually all debts in return for the liquidation of nonexempt assets. Exempt assets vary from state to state but typically include an automobile, home (in Louisiana, up to $25,000 of home equity is exempt from bankruptcy), tools of a trade, household goods, and most items that would have little resale value. Even though bankruptcy may not be desirable for most, going without health insurance risks bankruptcy, but it is far from inevitable.
A study by Himmelstein and colleagues analyzed 1,771 personal bankruptcies filed in the year 2001 to evaluate illness and injury as contributors to bankruptcy.2 More than a quarter cited illness or injury as a specific reason for bankruptcy and a similar number reported uncovered medical bills exceeding $1,000 in the two years before filing. Among those who were listed as uninsured, the average medical costs were $10,893 since the onset of illness. It is interesting to note that this figure is lower than the cost of two years of premiums for the high-deductible major medical policy mentioned above.
Litigation is a riskier but sometimes effective way out. Take the example of the man who participates in a bar fight that he provoked by making uncomplimentary statements about another man’s date. He suffers multiple facial fractures, requires a tracheotomy, and is treated for shock. He subsequently develops acute respiratory distress syndrom (ARDS). Even though this is successfully treated, he sues the hospital and doctors for the ARDS and the ugly tracheotomy scar. He doesn’t have much of a case but will drop the suit if the hospital and physicians zero his outstanding balance. Or maybe he gets really lucky and develops a more significant complication that he can make some real money on. The more complex and lengthy a hospital stay, the more complications that can occur.
Objection #2: Routine medical care and preventive medical care would be expensive without insurance.
Just as George Carlin noted that the meaning of life has changed, so the meaning of health insurance has changed for many people. Instead of health insurance acting as a safety net in case of a catastrophic event-its original intent-people have begun to use insurance as a means to fund routine and expected medical expenses. However, insurance is a very cost-ineffective and inefficient way to provide the means for routine medical and preventive care. In order for your insurance plan to offer (as mandated in some states) routine medical care such as yearly mammography, you have to pay not just for the cost of the mammogram but also for the overhead of the insurance company and their profit.
On the opposite side of the equation, the radiology suite has to charge more to provide a mammogram to someone using insurance as payment since the overhead is higher when dealing with these types of patients. For example, a radiology unit near my home is reimbursed more than $220 for a screening mammogram from some insurance plans. (The 2007 Medicare fee for screening mammography is $115.88.) Their best cash price, during breast cancer awareness month, is $50 ($125 the rest of the year). Another facility charges $89 cash year-round. Similarly, the Blue Cross rate for a 23-hour stay for a vaginal delivery when my daughter was born in 2002 was $1300. The cash price paid in advance was $900. We decided to pay cash in advance.
In a similar vein, I do surgery on patients whose insurance may not be contracted with my hospital or have no out-of-network benefits. For these patients, I negotiate a cash price with the hospital, that when paid in advance, represents a discount compared to what the insurance industry can get. The reason: Cash in hand now is better than a promise to get paid later. This is especially true since insurance companies are notorious for reneging on promises to pay and the costs (overhead) associated with billing and collecting from insurance companies is not insignificant.
One wonders, how much health care can be purchased for $6,400 cash? Paying in cash for health care may make more sense to some than using that money to pay an insurance premium.
For many Americans, the issue of making the analysis of whether to purchase health insurance is a moot point-they get it free as a benefit of their jobs. But if a choice must be made-which it is by many Americans who do not have health insurance through their job-many Americans with low net worth are probably making the financially rational decision to forgo health insurance.
References
- Gianoli GJ. A myth of modern medicine: There are 40 million Americans with no access to health care. ENToday 2006;1(2):4-6.
- Himmelstein DU, Warren E, Thorne D, Woolhandler S. Market Watch: Illness and injury as contributors to bankruptcy. Health Affairs: The Policy Journal of the Health Sphere. February 2, 2005. Web exclusive. http://content.healthaffairs.org/cgi/content/full/hlthaff.w5.63/DC1 .
©2007 The Triological Society