Is it Really Health Insurance?

James Kwak of Baseline Scenario shines the spotlight on a rarely discussed aspect of employer-provided health insurance, namely is it really insurance? Normal insurance is a contract between the insurer and the customer to protect against specified risks. However, Kwak zeroes in on the problem:

If, like most people, your health coverage is through your employer or your spouse’s employer, that is not what you have. At some point in the future, you will get sick and need expensive health care. What are some of the things that could happen between now and then?

• Your company could drop its health plan. According to the U.S. Census Bureau (see Table HIA-1), the percentage of the population covered by employer-based health insurance has fallen every year since 2000, from 64.2% to 59.3%.*
• You could lose your job. I don’t think I need to tell anyone what the unemployment rate is these days.**
• You could voluntarily leave your job, for example because you have to move to take care of an elderly relative.
• You could get divorced from the spouse you depend on for health coverage.

For all of these reasons, you can’t count on your health insurer being there when you need it. That’s not insurance; that’s employer-subsidized health care for the duration of your employment.

Once you lose your employer-based coverage, for whatever reason, you’re in the individual market, where, you may be surprised to find, you have no right to affordable health insurance. An insurer can refuse to insure you or can charge you a premium you can’t afford because of your medical history. That’s the way a free market works: an insurer would be crazy to charge you less than the expected cost of your medical care (unless they can make it up on their healthy customers, which they can’t in the individual market).

And needless to say, all of these disqualifying events are far more likely to occur if you or your spouse get sick. Kwak goes on to point out that these problems do not exist for the over-65 Medicare-eligible population (which may explain the lower level of support for reform in that age group), who do have guaranteed coverage. But for the rest of Americans, the current system is a bad bet, with a limited payoff.