On Insurance: Follow-Up

I recently posted on the subject of health insurance and contraceptives. One aspect that I did not cover in that post is the financial one: how do we pay for health care, and which ways lead to better financial outcomes? Let me get into that now.



When we buy an insurance plan, we agree to pay a frequent, predictable, smaller cost in exchange for being spared an infrequent, unpredictable, larger cost. Statistically, we are almost certain to come out behind in the long run -- if we did not, insurance companies could not stay in business. But we could not bear the larger cost, especially if it came at an unpredictable time, so we buy insurance anyway. And the insurance company pools the costs and risks from many people, so that one person's $1M cancer treatment is offset by 10,000 people's $100 premiums. (This is also why "the house always wins" in a casino, even when the odds are fair: they have deeper pockets then you. When you are down $100, you quit, and they keep your money. When they're down $100, they keep playing.) This is not an open-ended agreement. They offer to pay for certain things in exchange for a certain monthly premium. You agree to the terms or not, or you haggle.

Now, with respect to the topic of the previous post, the cost of prescription contraceptives is relatively low and highly predictable. In fact, you buy them with the same frequency with which you buy insurance -- monthly. And most families use them, so the opportunities for insurance companies to socialize their cost are minimal. Therefore, unlike with cancer treatments, where you're taking a gamble, in this case you know you're getting taken to the cleaners. You would unambiguously come out ahead financially by buying a plan that did not cover contraceptives and then buying those contraceptives out of pocket. (I've written about this before.)

"Ah!", you will say. Not to leave us hanging, you will then continue to say: "What about women who get their insurance through their employers, and can't afford to pay for contraceptives in addition?" Getting insurance through your employer is precisely the problem. All things being equal, women in this situation (i.e. most women) would be better off with higher paychecks in their pocket and no employer-furnished coverage for this type of care. She could use the cash value to choose her own non-contraceptive-covering plan and use the remainder to pay for her contraceptives.

Of course, all things are not equal. The "markets" for health care and health insurance are not anything like free. And since most employers' plans do cover contraceptives, you would be a fool not to use this coverage when you purchase them: you're already paying for them once.

Here's where I stand: Let's fix the underlying problem rather than heaping burdens on an already-broken model. That broken model is the coupling between who we work for and how we pay for healthcare. How we fix it will have to wait for another day.