Bryan Caplan  

Would You Give Up Your Health Insurance?

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Joseph Keckeissen, 1925-2011, ... Hypocrisy and Child Labor...
A question from lunch: If you could give up your health insurance in exchange for the cash required to pay for it, would you do so?  Sure, the cash would be taxed.  But if you buy the empirical evidence on the weak effect of medicine on health, doesn't it seem like a good deal?  To sweeten the hypothetical, let's suppose you can pay the same prices that an insurance company would have pre-negotiated on your behalf.

For me, the strongest reason to reject the deal is simply avoiding family conflict.  In our society, living without health insurance is a mark of irresponsibility and short-sightedness.  Convincing your spouse that you're a clever contrarian despite conventional wisdom is rarely easy - and even minor setbacks are likely to be treated as overwhelming evidence against your brave experiment.

In all honesty, then, given a choice between the status quo and zero insurance, I personally would probably stick with the status quo.  Nevertheless, I'd be happy to give up most of my coverage for an actuarially fair rebate.  Settling for catastrophic coverage when you can afford much better might seem a little weird. But if you've got reasonable income it's hard to paint this choice as irresponsible.

Question for readers who (a) have health insurance and (b) agree that medicine is greatly overrated: Are you willing to bite the bullet of living uninsured in exchange for the annual cost of the policy?  If not, why not?
 

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COMMENTS (38 to date)
Phil writes:

I'm Canadian.

I'd much prefer to have cash and catastrophic coverage than full insurance. My concern is not being able to afford the $500,000 treatment I need, not having to pay for a simpler $4,000 procedure (which I can afford).

BTW, why would it be short-sighted to have only catastrophic coverage, if you could afford the lower-cost expenses? I can see your point about conflict with the spouse, but I think that would be in specific cases where treatment was debatable. I'm single, but I can see my spouse getting mad if I were trying to convince her that the doctor-recommended $8,000 treatment for our child is overrated and not worth the money.

SB7 writes:

Even before I got to the second paragraph I was thinking "yes, I'd take that deal -- if I wasn't married."

If I was still single I would take that deal in a minute. I'd rather have catastrophic insurance and use the rest of the money for an emergency fund to self-insure against the chances of more minor medical needs, but also things like car repairs and computer equipment replacements and other contingencies that threaten my livelihood.

tim writes:

Having lived through car accidents, a house burning down, and my father having his colon partially removed - no. I have made more than six figures a year since 1994 - but in a flash even my substantial savings would disappear if a serious medical issue occurred. So really - its a hedging of bets isn't it?

And I'm not sure why you think medicine is "greatly overrated". The advances have been stunning. Are they expensive? Yes. Overrated? As a society that is what we need to determine. Twenty years ago my father wouldn't of lived through his cancer prognosis. Is extending your fathers life 20 to 30 years worth it to you? And to society? I would answer yes to both questions.

Tracy W writes:

In NZ, there's no, or at least there wasn't, any tax deduction for health insurance and I still purchased it.
But I always buy an insurance policy aimed at covering catastrophic problems with a high deductible, not the general ones.

The real puzzle is that whenever someone tries to sell me dental insurance, the policy is low deductible and low annual cap. Why?

Telnar writes:

As a single self-employed person, I actually face this choice (and not the family repercussions from it that others have mentioned), and opted for a policy with a high deductible at a small fraction of the cost of full coverage. It doesn't take that much risk aversion to want some catastrophic health insurance (and there are situations where medicine is both expensive and effective, so I'm not prepared to ignore the risk), but I see no reason to prefer isolation from my health care expenses at the margin (to use Arnold's framing).

The extra cash I get from this choice is only actuarially fair if my expenses will be typical on average. Historically, my expenses have been well below average, partly from good health and good luck, but also partly because I've only sought treatment when I expected it to help on average. I expect that at least the 2nd cause will continue.

Sonic Charmer writes:

As some of the answers indicate, it depends heavily on whether you're talking about (catastrophic, or downside-hedging) insurance coverage, or the thing that we call "insurance coverage" but which is really just some sort of bizarre payment-spreading plan.

What most people actually have from their work is a combination of the two packaged together that they have no way to price (or even obtain) independently.

In any event, I still can't understand why the blanket answer is "yes. If I still wanted insurance, I could use the money to go out and buy it". Is the claim that the tax advantage would make getting the cash-equivalent so much less that it would not be able to buy coverage? One, I doubt it; two, what about medical savings accounts; three, shouldn't that be changed?

Nacim writes:

Yes, absolutely. In fact, when I first started my job I tried pretty hard to avoid from enrolling in insurance altogether in order to save just $60 a month. In the end, I figured paying $60 just in case wasn't that bad of a deal. Had I been offered the full cost of the health insurance, I wouldn't have hesitated at all.

For context, I'm a single, healthy, 25 year old male. I haven't been to the doctor in a few years (Thanks Robin Hanson) and the only time I made good on my insurance was after I sprained my wrist on a bicycle ride. I didn't end up going until a few days later and the entire visit can be summed up as "Yes you sprained your wrist, here's a brace. $50 please".

wintercow20 writes:

I am radically supportive of the view above ... but I would NOT bite the bullet. The current system is so radically unprepared to deal with health care patients acting as consumers that I would not be willing to endure the many years before the system was ready to handle it. Doctors and nurses and staff are conditioned NOT to respond to consumer questions and requests on pricing and outcomes. For example, my son was admitted to an ER two years ago, and they still cannot figure out how much to bill me - even though I am paying out of pocket they still must negotiate with the insurance company on the pricing.

Mike writes:

What I like about your hypothetical is that is separates health insurance from my employer. If I could have the taxed income and buy (in a competitive market that doesn't exist) a catastrophic coverage policy, I would do it in a heartbeat.

I once owned and managed a small company. It always bugged me that my employess had to rely on my business acumen for their health insurance.

It didn't work out so well for them or me.

mdb writes:

When I was single, I would have done it in exchange for the money. Married with kids, as you say, the fights would not be worth it. I could have gone on more vacations, gone skiing more, etc.

Telnar writes:

In my earlier post, I dodged the question as posed because the real world offers an intermediate alternative. Now I'll take a look as if catastrophic insurance didn't exist and imagine the life cycle decision process of someone who has to choose between full coverage insurance and no insurance.

Unfortunately, the answer depends a lot on the detailed structure of the tail risk in health care costs. While a young person who is just beginning to accumulate assets might be willing to use bankruptcy as his "catastrophic insurance," that strategy is no longer attractive for the risk averse after accumulating substantial assets. So, it makes a big difference whether catastrophic medical expenses tend to cluster in the $100,000 range (which might be a reasonable target for someone of median income to save towards by setting aside health insurance premiums for 10-20 years) or if they most often occur (at correspondingly reduced frequency) in the $1 million range, which is not an attainable goal for a typical person's health care contingency fund.

While the frequency data on various medical cost levels probably exists, I don't know where to find it, which makes me unable to sort out the risk return trade off. I think that the vast majority of non-specialists would be in that position as well.

Bob Murphy writes:

I agree with Telnar. I am self-employed. I had trouble even understanding your post, Bryan. Are there actually people who *prefer* paying for low-deductible plans that cover toothpaste purchases?!

eccdogg writes:

I am supportive of the idea that the right way to do health insurance is a high deductible plan, but I would absolutely not take the deal.

I have cronic kidney disease and my 1 yr old daughter is diabetic, so the actuarialy fair insurance for our family would be much more. I am a beneficiary of the current system.

That said I don't think our family should be a beneficiary of the system. We are pretty well off and although moving to a more catastrophic system would be a financial hit for our family it seems like the fair thing to do. We have been blessed in many other areas and we could afford to cover the expenses on our own.

Dan writes:

I made that choice once albeit mostly out of ignorance and profited nicely. I was between jobs and was offered COBRA at $600 a month. I thought, incorrectly, that I could do better by pricing my own plan. That failed and so I and my family ended up without insurance for 2 months. I ended up having to go to the doctor for a sinus infection and perhaps out of mercy he charged me $20 and prescribed generic antibiotics. So at the end of this "experiment" I saved nearly $1200.

As a general philosophy I wish health insurance only covered hospitalization, accidents and prescriptive treatments for curable diseases. Childbearing is not a disease, and while perhaps accidental it is fully preventable. Now having an infant born prematurely or with a condition that requires intensive care, that is a risk that should be insurable.

Perhaps it is possible for a society to offer all its citizens unlimited, best in class, on-demand health care. I'm skeptical and even if we did I suspect this would be a huge malinvestment of capital. There is nothing wrong with society spending to keep 75 years olds alive an additional 18 months. Except there is an opportunity cost and spending that money on better roads or on saving the life of a 5-year old would probably benefit society more.

Tracy W writes:

I didn't actually answer the second part of the question.
I'm inclined to be convinced by the data that about half, say, of healthcare spending, is wasted. So I turn down things like a work benefit including an annual health checkup, and I'm pretty skeptical about general maintenance issues.
But that still leaves about half of healthcare spending really mattering. If I get a major problem that can be treated, I want treatment now. That's what I pay my insurance premiums for.

Jeremy, Alabama writes:

"let's suppose you can pay the same prices that an insurance company would have pre-negotiated"

I've always felt that insurance co's and especially the govt getting special rates is a disgrace! The uninsured get clobbered over and over again! They don't get the tax break buying insurance pre-tax; they pay directly for their treatment costs out of after-tax money; and they get skewered by prices artificially jacked up for the SINGULAR purpose of being able to book a lower price to the govt.

I had lower back surgery ten years ago. The "list" price was $250k. The insurance company paid $25k, and I paid $500. The list price is nothing less than a guarantee of bankruptcy for an uninsured patient.

Adam writes:

The cited article by Hanson draws broad claims about the lack of an effect of spending on health, but his evidence is limited to mortality. Mortality, or the absence of it, isn't health.

Health care spending may rise with healthy activities and their presumed benefits. Case in point: me. I messed up my knee while sailing (yes, sailing) and had estensive surgery and physical therapy to repair the injury. I broke my foot while jogging, resulting in another large dose of spending. I broke my nose while driving a tractor--more health care spending. I broke my arm while cutting wood and broke each wrist at different times in unusual, but active, ways. I had surgery on my shoulder to deal with worn down cartilage.

The health care I received with all of those injuries didn't extend my life years one second, but it did improve the quality of my life a great deal. Without the knee surgery at 40, I'd be limping around for the last 20 years, unable to jog or do any of the other physical activities that enrich my life and those of my wife, kids, and friends.

For many of us, health care spending is not about mortality, it's about life and quality of life.

J Mann writes:

I'd definitely want catastrophic insurance at a minimum.

Part of health insurance is some kind of cross-time emotional issue. The choice between saving money by driving your kid to Boston instead of paying $15K for the air ambulance that probably won't help is so upsetting that you'll pay not to have to make it.

Take pet insurance, for another example. You probably could afford to pay $4K to get Fido a kidney transplant, but either choosing to pay or choosing not to pay would make you feel so awful that it's worth it to pay $10/month not to make the choice, even if the expected value is lower.

David N writes:

You should take the cash and purchase a high-deductible plan and fully fund an HSA. You'll have money left over.

Foxhuntingman writes:

I have an HSA with a large deductible and catastrophic insurance. I would not give it up, because I do dangerous sports, such as mounted foxhunting, and I need to protect my assets from the cost of severe injury.

B writes:

Several of you seem to blame being married for keeping you from taking the deal. Is that an argument that wives are more risk averse or irrational?

mark writes:

As a business owner, in his 50s with wife and 4 children, I have been on both sides of this. I first want to say the comments are very intelligent and thus I have little to add.

I take the highest deductible indemnification plan I can find. This seems to be a common choice among business owners and thus a good indication that costs would be reduced if consumers have skin in the game. I have not encountered a situation in which additional expense has been incurred because the high deductible caused me to avoid care. I pretty much always meet the deductible, with so much demand in the family.

In fact, due mainly to the number of children, and the very real cost reductions the insurer negotiates with the providers, I probably break even on the whole program [premiums paid vs sum of money received and discounts received] over the long haul.

Shangwen writes:

I'm Canadian, so in a sense I am answering this only in the hypothetical, though I have certainly thought about this many times. I also work in the health care system.

First, there is no question that the effect of health care on health, particularly disease risk over the life span, is very low. Completing high school or having healthy parents are individual factors that have far more effect on health than health care access, and those are cheap or even free.

Second, considering rates of misdiagnosis, medical error, medication errors in hospitals, the lack of real science underpinning health care (there is a seminar on "healing therapeutic touch" just down the hall from me as I write) etc etc, I would say it is hardly something worth subsidizing. When you talk about spreading risk, there is more risk incurred by the health care system than alleviated.

Finally, the more people have insurance, the less incentive there is to examine costs and in particular the excess costs that have been pushing health care way past its marginal utility since the 1950s.

I agree you'd have to have nerves of steel to be deliberately uninsured, especially if you have kids. But my take would be that you're protecting your kids' health more by raising them in a wealthier household with higher and earlier tuition savings, than by raising them in a poorer household with lots of insurance for little benefit.

Charley Hooper writes:

All insurance is a bad deal from an expected-value perspective. Based on the odds and the premiums, the insurance company expects to make money and you expect to lose money.

We buy insurance, however, because we are risk averse. A $100 loss is no big deal while a $100,000 loss is painful. So we guarantee suffering those small losses to prevent that painful big loss.

How much and what type of insurance you buy depends on your risk tolerance. If you are truly risk neutral (an infinite risk tolerance), you would never buy insurance. If you are risk averse, as most of us are, the higher your risk tolerance, the higher your deductible should be.

Steve S writes:

Holy cow I was literally having this exact same discussion last night with a friend at dinner.

We both agreed (being healthy 25 year old males) that we would take the cash. Which I already kind of do, in practice, with an HSA combined with a high deductible plan.

Floccina writes:

I opted to buy the highest deductible that I could find. I have a 5K deductible per person policy with a copay up to 10K per person. My wife dropped the employer plan that she could get because she paid most of the premium.

Andy writes:

I wish I had the choice to take the money my employer pays for my insurance (probably $500+/month) and use some of it to buy catastrophic insurance, say with a $10k deductible. I'm sure that would make me better off in the long run.

Then again I haven't been to a doctor in 10 years.

Floccina writes:

BTW I understand the lifetime medical spending per American is about $350,000. It would be nice if we could get a very cheap medical insurance with a lifetime deductible of $350,000. I wouldn't even mind if the government provided that insurance (but there is nothing in that for politicians so fat chance!). Even if you got hit with a bill in excess of $350,000 young you could make payments and amortize that bill over time. Now, poor people would still need medical aid of some kind.

Jameson Burt writes:

Moral hazard runs rampant for any medical choice.
(1) However you get medical care,
the medical profession has almost always had you sign a form
that you will pay whatever the medical profession decides
to charge you.

(2) With or without insurance,
the medical profession charges whimsically.
As a result, the consumer can't make market-based decisions.
Demand-supply medical curves represent whimsey.

(3) Without insurance, the medical profession
often charges several times insurance companies' price,
as the medical profession tries
justifying a higher price to insurance companies
through the price it charges those without insurance.

(4) You play craps with insurance.
A $20,000 deductible insurance policy payed for 30 years,
without using the insurance in those 30 years,
might whimsically decide not to pay
for your one medical procedure.
The insurance company
might use a legal artifice and sue you for fraud,
might say the kidney transplant is not "normal",
might decide you might get your surgery in 2 years,
...
While overseeing cattle by horse 24/7 during calving season,
my ranch-hand Nebraska uncle broke his arm.
With his insurance, for an initial visit,
my uncle had to wait 2 months and travel 300 miles
from Nebraska to Colorado.
The insurance company is in the business of collecting premiums,
not buying medical care.
Much insurance is made to sell, not to use.

What do you do with medical services
that in almost all their forms worldwide
violate necessary assumptions for market decisions.
Financial approaches to medical care run like losing games of chess
-- all moves are reasonable because all moves are bad.

Lord writes:

One difficulty is if you can afford it why not? What else would you do with your money? If you don't have that much else you want to spend it on, it would seem cheap, but if you can't afford it you wouldn't have that option to begin with.

Brian Clendinen writes:

Maybe, because I could put it in a health saving plan and pay no FICA or taxes on it.

I actually lived with-out insurance for a year or two. My company is self-insured so it would have to be the actual amount they pay per person say over a 3 year period and not the budgeted amount. They regularly go over budget.

Otherwise I would not do it. One company allowed me to do that but it was so little cash ($120 a year) it was nothing close to what they were paying for me so of course I did not take it. The COBRA ended up being something like $480 a month. That would be one way to determine what the payments should be. COBRA payment minus the employee contribution would equal the cash payment given.


Health saving plans need to be a lot better. Get rid of the use it or loss it feature. One should be allowed to carry over unused balances and one should be allowed to withdraw it under 401k rules (10% penalty plus all taxes). However on 401k one has already paid FICA so one would have to also pay the full FICA amount when withdrawing.

Matt writes:

The only reason I have health insurance is because the school I go to requires it. Before that I didn't have it even though I could have gotten it for cheap through the military.

To be honest, I never understood the concept of insurance. I'm statistically healthy. Health insurance companies make a profit even after overhead. Something seems terribly, terribly wrong about this picture. Isn't that how casinos work?

Before I got a car loan, I went several years without insurance. A policeman gave me a 300 dollar ticket for driving without insurance. I went home and calculated that I had saved approximately $5,000 by not buying car insurance. That was one of the happiest realizations of my life.

odinbearded writes:

@Matt

If you want to give up health insurance or homeowner insurance, go for it.

But when you're driving, get the insurance. I'm biased, because I'm in the construction/transportation industry. And I'm willing to bet you don't have $200K to replace one of our trucks.


Jim writes:

I agree with my neighbor from the north Phil.

And BTW - I'm not single, and also agree with Phil on "the doctor-recommended $8,000 treatment for our child is overrated and not worth the money".

There's a reason the insurance crooks call many things "electives".........

HispanicPundit writes:

I would. But that's because I manage all the expenses in my household and I am a great saver and my family is young. All three things that work to my benefit.

botogol writes:

avoiding marital conflict is the reason why I wear a cycle helmet. I think of it as signalling respect for my wife's views.

I would def keep my heatlh insurance, as she would find it very troubling for me to be uninsured, and the premiums are worth the peace of mind.

Seth writes:

Yes. I would opt for the cash. I would also opt for the cash from the term life insurance policy my company provides and go buy that myself as well. Same with my dental, vision and retirement plans.

Funny how we never think auto or home insurance should be provided by our employers. Why is that?

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