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  • Misunderstanding Self-Insurance

    Posted by Jonathan on November 12th, 2013 (All posts by )

    Listening to Rush today. He is brilliant on politics but not as good on economics.

    He was advocating self-insurance for small businesses and individuals, in response to the Obamacare fiasco. He mentioned as an example that he had decided to self-insure a building (I think his home near a Florida beach) in response to his property insurer’s insistence on an extremely high deductible. He also said that he self-insures for medical costs.

    Two problems with his analysis. One, property insurance covers buildings and building contents, so liability is easily estimated and is capped at replacement cost. Unlike with medical care there is no possibility of very large, unplanned expenses. Two, Rush is personally wealthy and can afford to pay any medical expenses out of pocket. For these reasons his argument has limited applicability for most people, who buy health insurance precisely because they would be unable to pay an outlier medical bill without experiencing significant hardship. The same point applies to many small businesses as well. These groups thus need real insurance to cover outlier medical expenses. A self-insurance quick-fix would be inadequate.

     

    6 Responses to “Misunderstanding Self-Insurance”

    1. phwest Says:

      I think, but am not sure, that you may be misunderstanding what Rush was proposing. From what I’ve heard elsewhere “self-insurance” in a medical context is excluded from the PPACA and means the following :

      1) Company reserves a fixed amount per covered (say $5000)
      2) Company buys a policy that kicks in beyond the reserve
      3) Company pays an insurance provider to administer the plan

      So it is not self-insurance in the sense that you are on the hook for the bill. It just means that the company is assembling its own coverage from a number of elements rather than buying a commercial policy. This is fairly common practice, particularly for larger corporations, as can be cheaper and more flexible. The shift down to smaller outfits reflects its value as a loophole to get out from under the ACA.

      State laws control what is legal here – California apparently requires a minimum $35k per reserve, which pretty much rules out small companies, and other states only allow the practice for firms above a certain size.

    2. Jonathan Says:

      You may be right that I misunderstood.

    3. MikeK Says:

      The “self insurance” concept will be quickly explored as Obamacare collapses and the “navigators” run amok. A health IRA and a high deductible catastrophic plan are a form of “self insurance.” Obamacare outlaws this, as I understand it, so other insurers are coming up with alternatives. There is a form of life insurance, exempt from Obamacare, that includes a provision for “critical illness.” Here is a piece on it.

      But just because millions of Americans refuse to get ObamaCare-qualified coverage doesn’t mean they will be uninsured. There are policies available now that would work very well for the ObamaCare avoiders.

      Some of these policies are built on a life insurance platform rather than health insurance — which, incidentally, means they are outside ObamaCare’s long arm of regulatory control.

      The customer buys a life insurance policy that pays up to $250,000 upon death, which I believe is the current maximum available for this kind of policy.

      Along with life insurance coverage the policy includes what’s called a “critical illness” component. If the policyholder needs, say, surgery, the insurer writes the policyholder a check based on a schedule. Let’s say, for example, it’s $10,000.

      This would work with the cash practice system building plus the private hospitals excluded from Obamacare.

      Past research has shown that physician-owned hospitals score highly in following basic clinical guidelines and pleasing patients — the factors that Medicare is using to determine bonuses and penalties in its “value-based purchasing” program. Those successes are made easier by the fact that many of their patients come in for elective surgeries rather than emergencies, allowing for more orderly preparations than at a typical acute-care hospital. [Washington Post]

      The data is in a a pdf file here.

      I expect a lot of growth in this sector. And lots of alternatives.

    4. exsanguine Says:

      I see a sharp rise in cash only doctors offices. I imagine that they will even begin to sell care memberships to their practice that allows you to get a certain amount of regular visits, tests and such for the year.
      Then there will be policies that don’t fall under the ACA that will cover the catastrophic items similar to what was mentioned above.

      I fully anticipate my family doc to switch to this method real soon.

    5. Sgt. Mom Says:

      Looking at what the monthly insurance premiums for a family are costing now … I can see that it would make more sense to have a catastrophic care policy with a small monthly premium, and pay cash for routine and regular visits. Obamacare just won’t be sustainable. On the bright side, it seems to be crashing faster than anyone expected…

    6. MikeK Says:

      The lefties are still defending Obamacare and spouting DNC talking points (all those terrible plans that people want to keep.). I don’t think this will fly for long.

      It’s time for alternatives and I think the cash option will get more attractive. The catastrophic policy is like reinsurance and should be cheap. Then we have to think about uninsurables. Senator Ron Johnson tonight pointed out that Wisconsin’s risk pool has been destroyed.

      Medicaid is available to the poor but they may have lost their political leverage. When I was on the CMA Commission on Legislation, we were always under fire from marginal providers for more mandates for Medicaid. Chiropractors have gotten very powerful politically. They have a great strategy of saying “We only want this one thing.” Every year it is one more thing. Other alternative medical theories have gotten a lot of support from low IQ billionaire spouses.

      The politicians tend to support this stuff on the theory that it is cheaper than conventional medicine. Of course, nothing is more expensive than something that doesn’t work. Astrology isn’t very expensive either.