Insurance you don’t need — ever

In all the uproar over health care reform (which, having sold health care insurance in a previous life, I still insist on calling health care insurance reform because our health care system is being left pretty much unchanged), there have been a few stories in the media about limited benefit insurance plans. But for the most part, this part of the industry seems to be under the radar. A couple of states have banned Cinergy from advertising its limited benefit plans, but the plans are still legal throughout most of the country. Even some of the major health insurance companies have launched new plans with limited benefits.

I don’t understand why. From everything I know about health insurance, these plans seem to do exactly what insurance companies have been warning consumers against for years: use insurance to cover routine, limited, predictable expenses while leaving the unknown uncovered.

I was taught classic risk management — pay for routine, predicatable, limited expenses directly and use insurance to protect you against the unusual, unpredictable and potentially large expense.

For instance (to use an example from my insurance days), if your auto insurance covered oil changes, you’d end up paying a lot more for oil changes because the insurance overhead would be added on. Not to mention that oil change businesses would have incentive to sell you all the oil changes they could, at inflated prices because “the insurance company will pay.”)

Oil change insurance would not save you money or protect you from something that might destroy your finances. It would actually drive up the cost of an expense you know is coming like clockwork a few times per year that is manageable if you budget for it.

Limited benefit health plans are essentially a way to use insurance to cover your personal “oil changes.” You pay a premium to the insurance company, and they pay you a small amount of money when you go to the doctor or hospital. You’re still on the hook for the balance of the charges.

Here’s an example. In one plan, you get $10 when you go to the doctor. What doctor charges $10 for an office visit? You still have to come up with the additional $50 – $500 or so your doctor charges.

I believe the plans were designed to be deceptive. If you look at a chart of the benefits, it looks almost identical to the list of copays for a conventional health insurance plan: $10 per office visit, $100 per hospital admission, etc. But the difference is, in a limited benefit plan, these are the payouts you receive from the insurance company, not your copay!

If you multiply out your premiums per year, you’ll see that it’s much more expensive than just paying the doctor or hospital the $10 or $100 out of your own pocket.And, again, if your charges exceed the $10 or $100, the company doesn’t help cover the difference.

With conventional insurance, your annual premium may exceed the actual cost, but the difference is, if you have a bad year with lots of medical expense, the insurance company helps pay it. Paying in more this year than you got back in covered expenses actually means you had a good year. Your “excess” payment insured those additional medical costs you didn’t encounter this year, but might next year.

To borrow another example from my insurance days, you don’t feel bad in a year when you “lost money” on homeowner’s insurance because your house didn’t burn down.

With a limited benefit plan, you get that $10 per office visit or $100 per admission, and that’s all. Come down with a devastating disease? Good luck, we’ll be thinking about you and hope you don’t die so you can continue paying our profit margin.

For all the complaining about the “evil” insurance companies, at least with a conventional plan, they have some incentive to help get you well to control their costs.

One of the claimed benefits of the limited benefit plan is that it gets you into a network of providers, so you pay less per procedure, as if you had real insurance. (Some companies also sell the “network card” as a standalone product.) There are better ways to reduce your bill. If you don’t have conventional health insurance, try negotiating directly with your doctor’s office or hospital. Or check to see if your local government offers a network card for citizens who don’t have insurance. Many do, especially for prescriptions.

I was approached by a limited benefit insurance company that claimed to help its members by arranging to have them go overseas for lower cost medical treatment in “company approved” medical facilities in third world countries. I don’t know about you, but if I need surgery, the last thing I’m thinking about is how to get to a country where it’s cheaper. Nothing against third world countries and their medical care, but it’s not for me, nor would I recommend it.

It smelled like a kick-back situation to me, and I never sold a policy for that company. In fact, I never sold a limited benefit plan for any company. My conscience wouldn’t allow it.

Even in the best of the limited benefit plans, you’re getting a bad deal. You are guaranteed to pay in more than you get back, every month, every year. And, worse, you have no protection against catastrophic medical expenses.

All they are selling is a false sense of security.

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