My Ideal Health Insurance Policy

Right now my wife and I pay $148 per month for high-deductible health insurance through Assurant. Our rate is locked in for three years.

I was just talking with an insurance broker in Boulder, and he mentioned that a three-year policy is actually unusually long. Usually one must renew every single year.

As my dad and I have discussed, various political controls have effectively outlawed long-term policies.

Of course it’s difficult to predict precisely what products and services would become available on a free market. However, I have a good idea of what sort of insurance policy I’d like to buy.

Let’s start with some basic facts.

1. Real insurance (as opposed to today’s politically mangled health insurance) covers unexpected, high-cost treatments, not routine or expected care.

2. As one gets older, the risks of contracting a serious, high-cost disease approaches 100 percent, and this risk (on average) increases dramatically over the age of about 60. As one clever visual illustrates, one’s lifetime odds of dying of heart disease are one in five, and the odds of dying of cancer are one in seven. Stroke is the third greatest risk, and then risks splinter quickly into many competing factors. See also the charts (page 5) from National Vital Statistics showing “percent surviving by age.”

The upshot is that, in old age, the risk of high-cost care goes up dramatically. At that point, treatment is more or less expected, so medicine becomes increasingly less insurable. On the other hand, in one’s youth and middle age, routine care is the norm and high-cost emergencies are relatively rare, which is a great scenario for insurance.

What I’d like to do, then, is purchase a term health policy with a locked in rate till I’m about 60. I’d like the deductible to start high — around $10,000 annually — and increase every year until it reached about $50,000. The increasing deductible should enable rates to remain low even though health risks will increase somewhat over time.

So what happens when the term health policy ends? The point is to pay a low insurance premium and then save money to pay for care when I get old. Just to take an illustrative example, if you’re 35 years old and you buy term health until you’re 60, that gives you 25 years to save for old-age medical expenses. Let’s say a high-deductible premium costs $100 per month, whereas a “pre-paid health care” premium costs $500 per month. Let’s further say you pay $100 per month four routine care. That gives you $300 per month to save, which adds up to over $200,000 at 6.5 percent interest. I think it would make sense to save somewhat more than that.

If the sort of insurance I’m describing became widespread (as could only happen if politicians stopped completely mucking up the insurance market), one consequence would be that the large majority of health expenses would be paid directly by patients. This would put patients back in control of their medical care, and it would give patients the incentive to stay healthy and look for good value for their health-related dollars. This would keep health costs under control while achieving good quality. Which is why most politicians won’t even consider allowing it to happen.