How to Get the Best Deal on Health Care

Healthcare has been in the news a lot lately, and that has caused me to reflect on some of my own experiences with healthcare.

I had a brief and largely unsuccessful ‘career’ as an insurance agent. (I allowed my licenses to expire long ago, so you don’t have to run shrieking for the door.)

Why insurance sales? Well, I had worked as a contract programmer for a larger life insurance company for about a year and a half, and during that time, I had completed most of the LOMA courses, and would have qualified for the LOMA Life Master designation if they hadn’t discontinued it a couple of months before I would have been eligible. So I knew a lot about insurance, including the math and actuarial science behind it, the laws governing insurance companies, the principles of operation, and owing to my work on a quoting system that agent could use to help maximize their commissions from a given mix of insurance products, I knew a lot about how agents work. Or so I thought. Any rate, when the contract programming market went soft in 2002, I got my insurance licenses (both P&C and L&H), and tried for a while to make a living that way.

Turns out that knowing how insurance works, and being able to sell it effectively are unrelated skills. In fact, one of my observations during my stint as an agent is that the best-performing agents didn’t really know much about insurance at all; what they knew was sales.

Having actually run some numbers, it was obvious to me that the very best deal available (to a non-politician) in the health insurance business is a combination of a High-Deductable Health Plan (HDHP) and a Health Savings Account (HSA). Very few companies actually offer this combination, probably because it is inexplicably unpopular. I tried many times to explain this to potential clients, and it’s like it was talking to a brick wall. With very few exceptions, everyone wanted health insurance that covered EVERYTHING, including such items as yearly checkups, immunizations, and routine office visits.

I was appalled. This is like trying to buy car insurance that covers oil changes, wiper blades, and tires! It is a guaranteed recipe for paying about four times as much as you really need to for healthcare. You will get a MUCH LOWER overall medical care expense if you get insurance that doesn’t cover anything at all except catastrophic injury or illness that costs more than $5000, and set aside (preferably in an HSA) that $5000 in an emergency expenses account. The insurance premiums will be about 20% to 30% of what full-coverage runs, which will probably save you well over $5000/year. The basic principle at work is that if any time you “insure” against something that is predictable, you aren’t really getting insurance. You are pre-paying for routine care, and your money will be skimmed at least 3 or 4 times before it actually pays for that care. The purpose of insurance is to shield you from the unpredictable — the insurance companies are much better at predicting things than you are, and will gladly charge you for that.

There is yet another really important principle at work here — the fact that insurance companies stand between you and your doctor drives up the cost of all medical care dramatically. Part of this is due to the fact that there are 2 or 3 extra fingers in the pie, and part of this is due to the Faustian bargain that the medical industry has made with the insurance industry. The doctor now receives some arbitrary fee for his/her services, and gets that money from 90 to 120 days later. Meanwhile, the doctor has a business to run and employees to pay, and often ends up doing so on borrowed money. If the arbitrary fee happens to be arbitrarily denied, then the doctor has to either eat it, or go after the patient. So they end up playing the “insurance game”.

Let me illustrate this with a personal anecdote. About 20 years ago, I was shopping around for the best deal on an overnight stay in a sleep clinic. I called ten different sleep clinics (back then they were relatively challenging to find), and got quotes that varied from $4500 to $6500 for what amounts to a stay in a high-tech hotel with a couple of full-time attendants (one for each 4-5 patients), strapped to monitoring equipment that costs maybe $25,000. I was getting really discouraged. But the last one I called gave me a shocking clue: The girl that gave me the the quote asked me why I cared about the expense. “After all, your insurance will pay for it, less a small deductible.”

I replied with the explanation that I did not have health insurance (actually, technically, I did, but it had a $5000 deductible), and that I would be paying cash. To my utter astonishment, she came back with, “Oh, the cash-in-advance price is $1750.” Less than half of the first figure she mentioned.

After I hung up, and gave that a few minutes to sink in, I went back and called all of the other sleep clinics again, this time asking for the cash-in-advance (“I’m paying for this out of my own pocket”) price. The prices quoted were in the range $1100 to $1750, down from $4500 to $6500.

Quite a revelation. That’s the cost of insurance that covers “everything”.