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"I Don't Want to Pay for Somebody Else's Health Care"

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One of the criticisms of the health care bills passed by the House and Senate is that people who already have health insurance may have to pay for coverage provided to the uninsured. "I don't want to pay for somebody else's health care" is a common complaint.

This complaint resonated with some Massachusetts voters in the weeks before Tuesday's special election. Massachusetts already has a state-mandated health insurance program (Health Connector) and those voters saw themselves having to pay for the uninsured in their own and in other states.

The "I don't want to pay for somebody else's health care" mantra tells me these people do not understand much about the bills approved in Congress.

They also do not understand much about insurance.

People who say, "I don't want to pay for somebody else's health care" will be surprised to learn: you already do. That's because it's insurance, and that's the way insurance works.

Here is a specific example from an unnamed (but real)New England couple, both in their early 60s and in generally good health.

The couple's total health care bill was $15,975 in 2008. Their insurance premiums were $14,575 (84% paid by an employer) and they paid $1,400 in co-pays themselves.

Where did all that money go? Here's an accounting.

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The $1,400 in co-pays went directly to healthcare providers, of course. The rest went to Wellpoint.

And what did Wellpoint do with the money?

The insurance company paid $3,805 directly to the couple's healthcare providers on their behalf (so the couple's actual total healthcare costs in 2008 were $5,205). The company also paid $3,215 to itself -- $2,472 for administrative costs and $743 in profit (based on figures in Wellpoint's 2008 annual report).

The rest of the money -- $7,555 -- was used to pay for other people's health care costs. All this is shown in the pie chart.

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So, of the couple's $15,975 in total health care spending, just 33% went to their own direct medical care. Another 20% went to the insurance company for its own uses. And a whopping 47% subsidized other people's health care costs.

Imagine that: this couple spent more money on other people's healthcare than they did on their own.

How could that be? Easy: that's the way insurance works. When the couple bought health insurance, they put both their money and their risk of needing health care into a pool. In 2008, neither one got sick -- lucky them -- but somebody else in the pool did. And the couple's premiums helped to pay for that somebody else's health care.

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Rick Wise is an industrial psychologist and retired management consultant. For 15 years, he was managing director of ValueNet International, Inc. Before starting ValueNet, Rick was director, corporate training and, later, director, corporate (more...)
 

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