Has anyone done a good analysis on the expected value of purchasing health insurance? I will need to purchase health when I turn 26. How comprehensive should the insurance I purchase be?
At first I thought I should purchase a high-deductible that only protects against catastrophes. I have low living expenses and considerable savings, so this wouldn’t be risky. The logic here is that insurance costs the expected value of the goods provided plus overhead, so the cost of insurance will always be less than it’s expected value. If I purchase less insurance, I waste less money on overhead.
On the other hand, there’s a tax break for purchasing health insurance, and soon there will be subsidies as well. Also, insurance companies can reduce the cost of health care by negotiating lower prices for you. So the insurance company will pay less than the person who pays out of pocket. All these together might outweigh money wasted on overhead.
On the third hand, I’m a young healthy male. Under the ACA, my insurance premiums will be inflated so that old, sick, and female persons can have lower premiums. The money that’s being transferred to these groups won’t be spent on me, so it reduces the expected value of my insurance.
Has anyone added all these effects up? Would you recommend I purchase skimpy insurance or comprehensive?
“Also, insurance companies can reduce the cost of health care by negotiating lower prices for you. ”
This is the case even with a high deductable plan. The insurance will have a different rate when you use an in-network doctor or hospital service. If you haven’t met the deductible and you go in, they’ll send you a bill—but that bill will still be much cheaper than if you had gone in and paid out of pocket (like paying less than half).
But make sure that the high deductable plan actually has a cheaper monthly payment by an amount that matters. With new regulations of what must be covered, the differences between plans may not end up being very big.