Almost All Americans Lack Health Insurance

If we want to preserve financial protection for catastrophic medical care, we have to allow our health coverage to conform to the requirements of true insurance.
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Surgeons in hospital scrubs operating during surgery - focus on female surgeon
Surgeons in hospital scrubs operating during surgery - focus on female surgeon

How many Americans have proper health insurance?

Most estimates in the news are that 50 million individuals -- 15 percent of Americans -- are without health insurance. But in fact, very few Americans have health insurance... because what people call health insurance really isn't insurance at all.

Thanks to this quirk, when we are at our most vulnerable, we are less protected. To see why this is so, consumers must understand what insurance should and shouldn't do.

What is insurance? Think about your auto, life and homeowner's insurance. Each of these is designed as a means to pay for unexpected, unpredictable, very expensive occurrences outside of the control of the policyholder. Insurance is a means of financially protecting people from the risk of unlikely but high-cost events. To build up sufficient funds, the insured pays a premium calculated on their specific chance of experiencing a covered event. Insurance companies can only stay solvent if what they take in as premiums is greater than what they pay out in claims (plus business expenses and a competitive profit).

So what is it we have that we call health insurance but isn't? We have the prepayment of medical expenses. We expect our "insurance" to cover predictable, relatively inexpensive events like health maintenance checks, minor illnesses and injuries -- and to pay for them with minimal out of pocket spending. Under Obamacare, these expectations will be mandated by law. The new law actually makes it illegal for insurance companies to charge individuals premiums equal to their risk of making claims. It's like having a law requiring homeowner's insurance to pay for lawn care, house painting and water heater replacement, while at the same time prohibiting the companies from operating an actuarially sound business.

The bottom line: Our premium dollars will only cover so much. Requiring first-dollar coverage for predictable, relatively affordable expenses leaves fewer funds available to cover truly catastrophic events. And that means "insurance" companies are forced into skimping on items that could and most likely would be covered by real insurance. This trend is severely eroding our ability to protect ourselves from medical disasters.

One example of an unexpected, uncontrollable medical event with potentially large financial consequences is the premature birth of a child. According to a report by the March of Dimes, average first-year medical costs were about 10 times greater for preterm ($32,325) than for term infants ($3,325) in 2005, including both inpatient and outpatient care. This is the type of event that insurance can -- and should -- help cover. Instead, under the Affordable Care Act, health "insurance" is mandated to pay for well-child checks (which are inexpensive and predictable) -- without even a co-payment. Because insurance companies are legally required to increasingly cover non-catastrophic medical expenses, the only place left to control costs are those expensive, unlikely events for which we really need financial protection.

As if premature birth weren't expensive or scary enough, think about the added costs if these high-risk infants get sick. Premature infants are at high risk for developing complications from serious lung infections like respiratory syncytial virus (RSV), due to underdeveloped lungs and weakened immune systems. It's possible to prevent RSV in preemies through a prophylactic treatment to bolster these infants' antibodies. Unfortunately, such treatments can be costly... and therein lies the problem.

Professional medical organizations like the American Academy of Pediatrics (AAP) are under pressure to make recommendations about which treatments are "cost effective." The newest AAP protocol for preventing RSV infections in preemies both reduces the number of eligible infants as well as the number of recommended injections for those few babies who can access treatment -- even though the scientific evidence to reduce dosing is limited and controversial. In the name of cost control, rather than treat these vulnerable infants, the new recommendations err on the side of withholding an expensive preventive medication. Insurance companies use these recommendations to justify coverage limits.

Everyone wants benefits to outweigh costs, and a line has to be drawn somewhere for what is worth paying for -- but government mandates, as well as regulatory and legal requirements, are making it so health "insurance" provides less and less insurance. Structuring coverage to pay for predictable, low-cost medical expenses has turned the idea of covering risk on its head -- and is crowding out our ability to purchase the protection real insurance would provide against catastrophic medical events.

We can't have it both ways. If we want to preserve financial protection for catastrophic medical care, we have to allow our health coverage to conform to the requirements of true insurance. This way, when we are at our most vulnerable, this true insurance will have the reserves needed to err on the side of protecting consumers from the biggest threats to our well being -- both health-wise and financially.

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