Aaron: Hi, I’m Doctor Aaron Carroll and welcome back to Healthcare Triage. We’re gonna be doing this show every week now so make sure you subscribe right down there.

In the first episode we talked a lot about ObamaCare and how people without insurance were going to try to start getting it. But that led to a lot of questions about insurance in general.

John: Yeah, exactly. When am I going to stop having to pay for my insurance?

Aaron: You’re still gonna have to pay for your insurance. ObamaCare is about access....

John: Now Aaron, this was supposed to be about big government giveaway to friends of Obama. I am friends with Obama. I don’t understand what went wrong.

Aaron: Nothing went wrong. Let’s start this week with the basics of health insurance. How does it work? How much is it gonna cost? We’re gonna answer that and more in this episode of Healthcare Triage.

(Intro)

Aaron: Comprehensive health insurance isn’t as old as you think. The first real plans appeared in the US around the time of the civil war. And really, those were just types of accident insurance in case you got injured while traveling on a train or a steamboat. This wasn’t nothing since trains and steamboats exploded pretty regularly in those days but it didn’t do much to help with what we would all consider routine healthcare. Well into the 20th century, there just wasn’t that much need for health insurance. After all, what would you do with it? There wasn’t much healthcare to buy. If you got sick it wasn’t like there was an MRI scanner or artificial heart that you were gonna get. You went to the doctor for leeches and laudanum but if you got really sick, well you sort of died.

But as doctors and hospitals learned how to do more than amputate legs and shake their heads wistfully, they realized there was real money in this gig. So in 1929 a bunch of them joined up and formed an insurance plan called ‘Blue Cross’. They helped people buy their services. Doctors didn’t like the idea of hospitals being in charge so they created their own plan in 1939 which they called ‘Blue Shield’. So you had your ‘Blue Cross’ for hospital services and your ‘Blue Shield’ for physician services until they merged to form ‘Blue Cross and Blue Shield’ in 1982.

For the most part, people bought health insurance on their own if they wanted it. Some jobs offered it, but employer sponsored insurance wasn’t really a thing until World War Two. War time emergency plans put wage controls in place and so by law companies couldn’t compete for workers by paying them more. With so many men fighting overseas, employees were relatively scarce. So employers started competing for workers by offering them benefits like health insurance. Those weren’t restricted by wage controls and soon lots of jobs were paying for more and more comprehensive coverage. After World War Two, President Harry Truman proposed scrapping this system for one of universal public health insurance. People loved this idea, but doctors, hospitals and many businesses hated it. They’d already invested quite a bit in the current system. Labor unions also realized that they had a lot to gain by keeping insurance tied to jobs. They'd fought hard to get benefits for their members and changing to a national insurance system would have made these gains moot. Truman lost. Employee based health insurance won.

Over the next twenty years private insurance increased in popularity but remained mostly unavailable to the elderly, the poor and the unemployed. No-one wanted to cover seniors ‘cause they get sick a lot and cost a ton of money. But this meant that more and more people were faced with the difficult decision of going broke or letting their parents die. This was intolerable to many Americans because all of them expected to be old one day and they had no interest being stick in this dilemma. After years of fighting, President Johnson signed Medicare and Medicaid into law to cover the elderly and the poor and today government programs cover about one third of Americans. The rest of the insured are covered by private insurance.

But why do we even need insurance? To put it simply, healthcare is very, very expensive. My oldest son had to go the emergency department about a month ago. He received just an ultrasound and a doctor read it. Turns out he was fine and he just needed an antibiotic. The cost of that visit: $6,000. And that’s cheap compared to really big things like a hospital stay. Last year we spent something like 2.7 trillion dollars on health care. That’s upwards of 18% of our GDP. Most people don’t have the kind of money to pay for care if they get sick. That’s where insurance come in. Everyone individually pays less, but sick people get the money. We pool risk and the money goes to whoever needs it. By the way, anyone that complains that they don’t like paying for someone else’s healthcare is completely missing the point. Insurance is always about paying for someone else’s healthcare, it transfers money from the healthy to the sick.

How does insurance work? Well the first thing you do is pick a plan. Plans differ on the amount of actuarial value they have. That’s a fancy term for describing the approximate percentage of the cost of care that insurance will cover. If a plan has 60% actuarial value then it covers 60% of the cost and you cover 40%. Plans with higher actuarial value cost more. You pay more upfront and pay less later. And the insurance exchanges which we talked about on our last video, bronze plans have a 60% actuarial value, silver plans are 70% and gold plans are 80%. Insurance also has networks of physicians. These are doctors or hospitals with whom the companies have negotiated lower rates. You get better coverage if you stay in network and pay more if you go out of network. So if there are certain doctors you really want to see, you need to make sure they’re part of your plan.

The money you pay up front is called a premium that’s often charged monthly. That’s what you see when you find out how much a plan costs. That is not all the spending you’ll do. Pretty much every plan comes with a deductible. This is an amount of money that you’re responsible for paying even after the premiums before insurance coverage kicks in. The reason plans use this is that they think correctly that you’re less likely to spend your money than their money. It prevents you from going out and getting a ton of care that you might not need. More expensive plans, which have more upfront money, usually have lower deductibles. Less expensive plans have higher deductibles. Not all care is subject to the deductible. For instance, most preventive care is fully paid for by your insurance right away.

Even after you spend the deductible you’re not done. Most plans come with co-pays. These are set fees that you have to pay each time you access the healthcare system. They may be $20 for a doctor’s visit or $100 for an emergency department visit. And it gets better. There’s also co-insurance. It’s the amount that you yourself have to pay for care above what your insurance pays. And then you have to give them a first born child, two wishes and an ounce of ground unicorn horn. Just kidding, it’s actually only one wish. OK, I’m kidding about the whole thing. It’s just the co-insurance is real. It’s not all bad. Plans now come with an annual out of pocket maximum. For a family, it’s at most $12,700 and for an individual it’s $6,350. So after you’ve paid that amount of deductibles, co-pays and co-insurance, you’re done. It’s all on the insurance after that. Even better, there are no longer any annual or lifetime limits, you insurance can never run out.

So if you bought a silver plan, say, with an actuarial value of 70% for yourself from the exchange in Indiana, the premium might be around $4,000 a year or just over $350 a month. Let’s say it has a $1,500 deductible, $20 in co-pays for doctor visits and 15% co-insurance. When the year starts, even with the insurance, you’ll be paying for almost everything until you spent the $1,500. Then you’ll be paying $20 for each visit plus 15% of other charges until you hit $6,350.

In a bad year you could be on the hook for a total of about ten grand or the cost of the premium plus the maximum out of pocket expenses. This is going to come as a shock to most people who assume that health insurance would now be cheap or even free. But you have to look at what might’ve happened without it. What if it had been you had to go the emergency department a month ago? Instead of costing you $6,000 under this plan you would’ve been responsible for a $350 copay and $900 co-insurance payment. That $1,250 is much less than $6,000 and this could happen a couple times a year. Or you could get really sick or you could have a kid. The average price of having a baby in the United States is $30,000. If you have a Cesarean section it’s $50,000. People with insurance are way, way, way better off than those without it.

So do your research. Figure out what you’re willing to pay upfront in premiums but don’t forget that networks, deductibles, co-pays and co-insurance matter too. Figure out if you’d rather pay more upfront or gamble that you won’t need to and pay more later, but make an informed decision. Now you know and knowing is half the battle. I always wanted to say that. Go Joe!