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It's called health insurance—but it isn't really
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The Supreme Court will hand down its decision about the health care reform law any day now, and then we may better understand the fate of the law's health insurance plan.
But Ty Leverty, a University of Iowa insurance expert, says one thing probably won’t be noted very often in the post-decision analysis and debate: Health insurance really isn’t insurance.
“Insurance manages risks that are unknown, such as a house fire or an automobile accident, by transferring the risks to an insurance company in exchange for a premium,” says Leverty, Tippie College of Business assistant professor of finance and Tristar risk management fellow. “The insurer, in turn, manages the risk by pooling a large number of risks and spreading the costs incurred when something catastrophic happens to a policy holder. Health insurance, however, frequently covers things that are known.”
Leverty points out three key differences between health insurance and other types of more conventional insurance:
• Health insurance covers routine expenses for preventive measures. Health insurance covers the cost of predictable tests and procedures that we need to maintain good health, such as an annual check-up, mammograms or cholesterol tests. Conventional insurance does not cover these kinds of expenses. “That’s like asking auto insurers to cover the cost of a tune-up,” Leverty says.
• Health insurance covers small, random expenses. People expect health insurance to pay to visit a doctor for minor things, like confirming that we have the flu or wart removal. “We don’t expect our auto insurance to pay for the costs of replacing a burned out headlight,” Leverty says.
• Many Americans get their health insurance through their employers, not on their own. As a result, a lot of people don’t really know how much they’re paying for it, and thus, don’t know how much their health care really costs. When we insure our car or our house or our cherished antique Steinway, we buy the policy ourselves and know the value of what we’re insuring.
Leverty says some parts of health insurance really are insurance—the part of the policy, for instance, that pays to cover injuries that truly are unforeseen, like a heart attack, stroke, or the stitches you need after cutting yourself slicing a bagel.
But most expenses that Americans expect their low-deductible health insurance to cover—annual check-ups, prescription drugs, wart removal—are not unforeseen expenses. Most of the time, he says health insurance is really more like a cash-flow management policy.