What is Insurance?
I asked this question to a group of insurance agents recently and they were kind enough to answer without taking offense. I heard several different responses, but most described it as the pooling of assets by many to protect against a potential catastrophic risk that might be experienced by a few. The risk may be from a car accident, a storm, a flood, a catastrophic illness or injury, death or disability, or just about any risk one could come up with.
However you view it, insurance is a financing tool used to protect against a potential, but not yet realized, risk. I asked this question to begin a conversation about Health Savings Accounts because I wanted to make sure that everyone was on the same page about the purpose of insurance: insurance is protection against a possible catastrophic loss.
Yet it seems that many people expect health insurance to pay for all of their routine health care expenses, no matter how small or trivial. "How much is my co-pay?" is a common question when it comes to health insurance. It seems that the public no longer thinks of health insurance as protection against catastrophic risk, but against everyday risks.
I am amazed that someone would want to spend $100 per month more to get a co-pay plan to cover the two to three office visits they might have each year, whereas those office visits would typically cost less than $150 when an in-network doctor is used. Let's do the math again: that's $1,200 per year for the convenience of having a co-pay when you go to the doctor. Still, when I look at what is sold, that seems to be what people prefer.
Health Savings Accounts take the concept of what insurance is -- protection against catastrophic risk -- and make it work for individuals. The accounts provide tax advantages and savings so individuals can create personal security against minor health care expenses. At the same time, the required high deductible health insurance plan protects against catastrophic risk. It is a powerful combination.
Health Savings Accounts put the power of choice and control in the hands of the individual consumer when it comes to their health care money. The tax advantages are tremendous and the fact that you can use the money to purchase anything from aspirin to an expensive experimental procedure, speaks volumes to the flexibility and choice that the account gives to consumers.
Health Savings Accounts represent a different approach to health insurance that involves the understanding of two things: the tax advantages of the account and the cost benefits of buying a high deductible health insurance product. Of course, you also have to convince an individual to give up the convenience of their co-pay.
What is Insurance?