What is Health Insurance?

In my dealings with business owners and executives over the years I have noticed quite a lot of confusion or misunderstanding when it comes to health insurance. The answer to what health insurance is may be better answered by asking, why do we have health insurance? The answer is going to vary widely. For a person of considerable financial means the answer will be quite different from the person that has little. At the end of the day they though, they both would likely want to have the same result in case they have a significant illness; no major financial disaster. No one wants to be ruined by a health crisis. Health insurance should save the day, right? You get sick, the insurance pays. Benefits between policies can vary widely, but in general when it comes to group health insurance avoiding financial distress is what we expect, and that is what the plan will generally deliver.

The expectations of the public has changed over the years as it relates to what they want from their health insurance. It mirrors what we want in other purchases. We want the best and we want to pay the least for it. The days of low cost insurance are gone. It is expensive. It is however a choice. We can pay the high cost of insurance or gamble with our future on the chance that we can stay healthy and avoid the doctor. It is just a rule of the universe, you cannot get something for nothing.

I am reminded of a story I heard that goes like this. Many years ago a great king called in his most wise servants and scholars asked them to boil down all the wisdom in the universe. In two weeks they came back and presented the king with a volume of books that looked like a set of encyclopedias. "Well done" said the king, "but this is too cumbersome, reduce all the worlds wisdom to a single book." The wise men were very perplexed, but fearing for their lives they went back to the drawing board to consolidate all the worlds wisdom into a single book. Two weeks later they returned and presented the king with single book. "Well done said the king." After reading the book the king was convinced that the wisdom could be reduced to a single sentence. One sentence that would give one all the wisdom needed. He called the wise men back and told them, "reduce the wisdom of the world to a single sentence and you will have completed your duty." Scared for their lives and fearing they could not complete the task they begged the king to reconsider, but the king insisted that the task could be done. So the wise men went to work. Two weeks later they returned to the king with a single sentence on a piece of paper. Reluctantly, they handed the paper to the king. The king read the words and sat silently. After pondering it's meaning a few moments he said "well done my servants. You have reduced all the wisdom in the world into a single statement. You truly are wise."

It is hard to believe that a single sentence could contain so much wisdom, but it is as true today as it was all those years ago. I guess you're wondering what that statement was. What was presented to the king simply said, "There ain't no free lunch!" I don't know if that is all of the wisdom in the world, but there is certainly a lot in that sentence.

When we buy things we are usually very careful to make sure that what we buy will fill the need we have. If we are going hiking we need hiking shoes. We don't use a shovel to hang a picture. Can you imagine how much auto insurance would cost if it included car washes and oil changes? What if it included your inspections and registrations? What if it included coverage to repair the engine when it wears out? It would be extremely expensive! It would cost as much as, well health insurance. Imagine that. We carry the minimum insurance possible on our car. We need to apply the same logic to our health insurance. We used to refer to it as major medical. It would pay for major things. Now we ask it to pay for everything and we are surprised that the cost is escalating and it is becoming difficult to pay for.

Insurance companies all want to deliver a good quality product for the money. They could not stay in business if they didn't. That is free enterprise. If you are the owner of a small business you have a lot of good choices when it comes to purchasing a plan for your employees. There are rules in most states however that divide small group plans from large group plans. Any insurance company will analyze a census and determine the associated risk. If a company is under 50 employees then it is a small group, over 50 large group. There is no choice in which group you go into. Insurance is about spreading risk. The more people you have paying in premiums the better. The main differences you will get in price in small group is the difference in coverage. All of the carriers understand the risk equally. There aren't too many variables. "Shopping" your group to multiple carriers will get different rates, but be careful that you are getting what you think you are paying for. You do have one alternative if you in the small group plans that would put you in a large group plan and pricing model. A Professional Employer Organization will aggregate your employees with their group of employees and possibly improve your plan's benefits and produce pricing stability that you cannot achieve on your own.

When looking for your next insurance plan for your employees do yourself a favor, make sure the plan does what you want it to. I recently saw a statistic that said over 90% of Americans use less than $1,000.00 per year of medical treatment. I saw another statistic that says the average annual premium for a family is over $12,000. Is it possible that we have a breakdown between what we pay for and what we get or need? Health plans need to be carefully considered, but make sure you are not paying for benefits in the plan that you don't want or won't use. There ain't no free lunch! This I know for sure.

I invite your comments.

Have a winning day!

Steve