Your Money Or Your Health! What is Health Insurance Really For?

There are only 4 reasons why we get health insurance. The goals of health insurance are:

1. to avoid the risk of financial ruin from illness


2. to save money,


3. to stay healthy and


4. to have the feeling of security that comes with thinking that our care is paid for.

This article looks at reasons 1 and 2, and poses some questions to ask yourself to choose the insurance that will save you the most money.

Reason 1 for getting insurance: avoiding the risk of financial ruin from illness.

The primary function of health insurance, if not all insurance, is to pool the risk among many people, so that no single person is brought to ruin from an adverse event. Anything else that insurance offers is extra to the entire concept of insurance. Catastrophic care is a basic necessity for any plan. Your agent or insurance adviser should be able to help you with any questions about this aspect of health insurance. Many states have insurance commissions and laws that assure minimum standards. Contact your state commission to see if they have a brochure or web page outlining those standards. Understand that you might want to go above those minimum standards for catastrophic care.

Helping you define your personal choice about the amount of catastrophic insurance you want is not really the purpose of this article, but some of the things. Many have high lifetime maximum benefit payments, also referred to as "caps," between $1 million and $3 million. Once the cap is reached, your insurance company will not pay for any medical expenses and your health insurance policy will become void. Also, it should be noted that most catastrophic health insurance plans do not cover pregnancy, and other plans do not cover maternity care for a full year after your effective date.

Reason 2 for getting insurance: saving money

Can insurance save you money? Acquiring insurance through your employer, who essentially buys in bulk, will almost surely provide a savings over buying it yourself. The present expectation of low-deductible, low co-pay insurance began during World War II, when there was a shortage of workers, and, to prevent wage competition, there was a cap put on wages that could be paid. Employers began to offer insurance with more and more and more benefits to attract workers, and the value of the employer-offered insurance was further enhanced when employers' contributions for healthcare were considered as pre-tax dollars. In other words, if your employer pays for insurance, you are not taxed on the cost of that insurance as income.

If you are self-employed, in most situations you lack the bulk purchase benefit, although organizations of self employed persons may offer some benefits. You may, however, have other possibilities for tax savings. Again, ask your agent, accountant or financial adviser for clarification.

But the more complex question into which we will be looking is - can you save money by increasing your deductible or co-pay? You will certainly have a lower monthly payment, or keep more money in your paycheck, but will that help you achieve your other goals, protection from financial insolvency, achieving security, and keeping healthy?

Health savings accounts - HSA's, as they are known - allow you to put a percentage of the value of your insurance deductible into a tax-deductible account that can be used for whatever health costs you have, from recommended nutritional supplements to dental care, and includes most forms of medical care, including chiropractic, acupuncture and some other alternatives. And, particularly if you are fairly healthy, the dramatic savings you will have in insurance premiums can outweigh the cost of healthcare you will purchase out of what you put into your HSA. What you don't spend you keep; like a retirement account, it can accrue interest and dividends tax-free and can be passed to your beneficiaries. Many employers offer this option as well. We will go more deeply into this in part 4.

The savings (or extra expenses) you will realize when you lower the amount you pay for insurance, however, will be based on how you actually use healthcare, how disciplined you are and how you choose to commit to your health.

Here are some things to begin thinking about now.

1. Simply having insurance, no matter how high the deductible is, may entitle you to discounts. Another personal story: I have a $5,000 deductible on my insurance but when I went to get a $1,400 MRI for my broken ankle last year, which I had to pay myself, I was only charged the insurance rate of $720 because of the agreement the radiologist had with the insurance company, even though I was paying out of pocket.


2. How do you actually use your healthcare? Are you a person that goes to the doctor once every couple of years, or do you go every time you get the flu? Do you believe in prescriptions as a way to keep healthy, or do you do tend to exercise, do yoga, and take herbs and nutrients to keep healthy? Do you mostly stay with medical doctors for your care, or do you go in for alternative medicine?


3. Do you have conditions for which you use expensive prescription drugs regularly? (If yes, are you happy with your situation or would you like to look into alternatives?)


4. Are you a person who likes to take charge of your health, and make your own decisions? Do you research your condition yourself, or do you like to just let the doctor tell you what to do?

While different insurances may have different formulas, your choice of insurance plans is about much more than money, it can actually reflect and support your personal philosophy of health.