Why Health Insurance? Part 1

My last post was a nuts and bolts approach to comparing different health insurance policies. After posting, I realized that the post assumes that people understand all of the mechanics of health insurance and why people would be willing to forgo thousands of dollars of their pay for an insurance policy and then still have to spend a lot of money to doctors and hospitals. So, in this post, I’ll briefly lay out the benefits of having a health insurance policy. And in a couple of future posts, I’ll talk about the larger structural system of healthcare payments and why the insurance market looks like it does.

Avoid penalties

The first reason to have health insurance is to avoid paying the uninsured tax penalty under the Affordable Care Act. There are several reasons the ACA includes this penalty provision. The penalty is to encourage people who can afford coverage to spend the money on coverage which increases the pool of money that the insurance companies have to pay out for claims. (And theoretically, the more insured people you have in the pool the lower the premiums can stay, but that is the set up for a future soap box about giving private insurance companies government-backed market power).

The penalty also helps subsidize the emergency rooms system. ERs cannot turn someone away for inability to pay, so a lot of the potential revenue for the services ERs provide is uncollectable. That’s why the proper name for this penalty is the “shared responsibility percentage.” ERs are open to everyone and now “everyone” pitches in to keep them open since ERs are generally where people without health insurance go to get treatment since ERs can’t turn them away.

While avoiding the penalty is the first reason to go ahead and get an insurance policy, it’s not the important reason. After all, for some people, it simply makes more sense to pay the penalty and pay providers directly out of pocket than shell out the huge sums for health insurance policies.

In my next post, I’ll talk about the important reason to get a health insurance policy even though it may create budgetary strain.

 

November 8, 2016

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