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Posted by on Apr 8, 2010 in Ethics, Health care, Legislation

Mandatory Health Insurance: Gaming the New System

Mandatory Health Insurance: Gaming the New System

A big HT to the DCMB for citing the latest Calvalcade of Risk roundup at Political Contributions. Yesterday’s edition provides an intriguing online calculatorbased on income and the cost of and need for health insuranceto determine whether it’s cheaper to buy coverage or suffer the IRS penalty* for not having it.

The big question answered (sort of): Should I retain or drop health insurance under “ObamaCare”?

Because the new act prohibits insurance companies from denying coverage to anyone with a preexisting illness, an essential loophole is created that allows some citizens to game the system. In these cases, the cheaper optionto purchase insurance or to suffer the taxcan be determined.

For instance, for a person with an annual income of $40,000 who pays $4824 annually for an individual policy and has a 1-in-4 chance of being hospitalized, the formula spits out the following like a carnival fortune teller: “It makes more sense to drop your health insurance, buying it only when you need it, then drop it again if your health allows.”

That’s because the annual penalty for not being insured,** $1000, is much lower than the likely accumulated savings from dropping coverage over 3 years, $11,472 ([$4824 x 3]  $3000). However, if someone loses the gamble (meaning that she fails to get health insurance and then find that she needs it, the basic cost is $5824or the tax penalty plus the cost of insurance for 1 year).

Major caveats to the formula must be noted, however. Insurance premiums are based on current rates (eg, the average annual premium for an individual in 2009 was $4824, according to USA Today). The hospitalization odds provided are for Australia (see table below); it is assumed that the odds are similar for Americans. Also the odds of needing outpatient and prescription coverage, which are much more likely than hospitalization, are not considered. Another big caveat: out-of-pocket costs for necessary hospitalization, whether insured or not, are ignored.

According to one report, gaming the system has already occurred in Massachusetts, where a health insurance mandate has been in effect since 2006. The consequence: soaring insurance rates. 

Age, years

Female

Male

<1

1 in 3

1 in 2

1-10

1 in 10

1 in 8

10-20

1 in 9

1 in 10

20-30

1 in 4

1 in 8

30-40

1 in 3

1 in 6

40-50

1 in 4

1 in 4

50-60

1 in 3

1 in 3

60-70

1 in 2

1 in 2

≥70

4 in 5

4 in 5

* Which goes into effect in 2016.

** In that income bracket.

bmartin (1127 Posts)

A native East Tennessean, Barbara Martin is a formerly practicing, board-certified neurologist who received her BS (psychology, summa cum laude) and MD from Duke University before completing her postgraduate training (internship, residency, fellowship) at the Hospital of the University of Pennsylvania in Philadelphia. She has worked in academia, private practice, medical publishing, drug market research, and continuing medical education (CME). For the last 3 years, she has worked in a freelance capacity as a medical writer, analyst, and consultant. Follow Dr. Barbara Martin on and Twitter.