Health Insurance Puzzle

by Harry on October 24, 2003

It’s health insurance decision time at both my workplace and my wife’s. Like most employers mine is shifting more of the cost of insurance onto employees (though, brilliantly, it is not telling us how much we will have to pay, though we have to choose by today). I usually insure the family through my employer, and will again this year despite the cost, since, although my wife’s insurance would not cost us anything, we could not continue with our current GP on her insurance.
BUT, of course, we are also entitled to insure through her employer, and without any cost to ourselves. This would save us about $200-500 per year, as the co-pays for drugs through her insurer are lower and she gets better dental coverage (and we use a lot of drugs and dental). It would cost her employer about $10,000 per year to provide us with this benefit. (On top of the $12,000 my own employer pays).

So, what should we do? Have her employer pay $10,000 to an HMO so we can save at most $500? Or just lose the $200-500? (Please don’t suggest moving to a civilised country with a sane and efficient arrangement for funding healthcare: that’s not an option).

Three relevant facts:
1. My wife’s employer is the local public school district.
2. For years my employer has been effectively subsidising hers, both because when the kids are sick my job has the flexibility that I can take time off instead of her, and because we have never signed up for health insurance through her employer.
3. She works 30-35 hours a week and is paid on a 50% contract.



Gabriel 10.24.03 at 9:16 pm

An ignorant European has a question – even private health insurance in the UK costs considerably less than $10,000 a year (i.e. more like $1-2,000) – why is US insurance so expensive?


A friend 10.24.03 at 9:44 pm

There’s nothing unethical about using your legal opportunities to the fullest. It’s not your fault that the system is inefficient. You didn’t design it.


Keith M Ellis 10.24.03 at 9:45 pm

“It would cost her employer about $10,000 per year to provide us with this benefit. (On top of the $12,000 my own employer pays).”

I don’t understand that parenthetical because your post reads, to me, as if you were considering switching from one employer’s policy to the other employer’s policy.

Gabriel, is private insurance in Europe serving the same purposes that insurance in the US is serving? If not, I don’t know how you could directly compare them. Are people with private insurance still eligible for state-subsidized health care? Do they utilize it? What are the real costs associated with the health care consumed by the privately insured in Europe, and what are the same in the US?

I had sort of assumed that private health insurance in Europe would be pretty expensive, because I’d assumed that it would provide extravagent US-type health care, with no limits, at private hospitals, and the pool of the insured would likely be people that were relatively high-risk and affluent. But if it’s relatively cheap, then I think something else is going on.

Anyway, in general, US health insurance could be expected to be relatively high if for no other reason than that US health care costs have been for many years rising much faster than inflation. US health costs are very high.


David Naylor 10.24.03 at 9:46 pm

An even more ignorant European has a question. What exactly _is_ health insurance? Presumably (in analogy with life insurance) it is an insurance policy which pays out when the policy holder becomes ill – but why would you need such a thing? Do American employers not pay sick pay?


Neel Krishnaswami 10.24.03 at 10:08 pm

$10-12,000 per person dollars seems astonishingly high, even for the US. When I was paying for my own coverage in Massachusetts it ran to about $250/month (3K/year) for essentially full coverage. (Right now, I’m only opting for catastrophic coverage, which costs less than half that.)

David: Most (but not all) American employers do offer sick leave and sick pay. However, what health insurance covers is not the foregone income from being too sick to work, but the actual fees that the person has to pay to the doctors and hospitals for medical treatment. From the perspective of an individual, you can think of medical care in the US as a professional service paid for just like legal advice, engineering or architecture. You can buy different levels of insurance, at differing costs, which offer different amounts of coverage. My current insurance has an annual deductible of $3000, but covers all expenses past that point. Essentially, what I am doing is insuring against the possibility of falling prey to an extremely expensive disease like cancer, while paying for regular medical expenses out-of-pocket. (This makes fiscal sense for me, since I’m still in my 20s. Other people can spend more and get more medical expenses covered.)

This is not true at the institutional level, though, which is why US healthcare is so expensive: the over-complex tangle of private provision and government regulation create a host of perverse incentives that drive up costs. American government spending on health is higher, on a per-capita basis, than the UK, for a vastly lesser result. (And yes, I am perfectly aware of the parlous state of the NHS — the US government does worse.)


Keith M Ellis 10.24.03 at 10:40 pm

“Most (but not all) American employers do offer sick leave and sick pay.”

I’d be willing to bet that somewhere between 1/3 to 1/2, or even more, of all the jobs in the US _don’t_ offer sick leave _with pay_. The entire lower-end service economy doesn’t, I don’t think. This is assuming that a distinction is made between sick leave with pay and vacation with pay. Many US businesses just lump the two together, say, ten business days if you’ve worked with that employer a year or more. This doesn’t include national paid holidays, of which there are, what, six? A far cry from most of Europe, eh?

Damn. Don’t get me started on the US’s broken health care system. The problem is that although it’s not socialized, it’s also not an efficient market, either. It’s a very, very, very broken market. I am being completely honest when I say that I would support either a nationalized system, or a true pay-as-you-go system over the status quo.

Here’s a good example of how the system is badly broken. Europeans may not know that the US patent on fluoxetine, _Prozac_, finally expired last year. So now generic fluoxetine is available, and generics are almost always cheaper, right? Well, in truth, the price for generic fluoxetine varies dramatically everywhere you look, from one drugstore to another right down the street. The national chain, Walgreen’s, where I shopped until recently, wants $60 for #30 20mg capsules. In contrast, Costco, charges….$7 for the same thing. People in almost any city in the US can call around town to compare prices on generic fluoxetine, and they’ll be quoted prices that span that range, for exactly the same product. Most people are paying only a copayment or deductible, and so they’re not price sensitive. I don’t have an answer as to the question of why the insurance companies are letting Walgreen’s et al get away with this. But the point is that this is a _broken market_. It’s manifest.


David W. 10.25.03 at 4:58 am

Keith, that’s a rather surprising story, I hadn’t heard of that. If it’s true, I’d say it’s an example of how the current health care system essentially encourages any party to get whatever they can when they can. As a consumer in this system, I’d say Harry and his family should take the edge they can get.

(Of course, if Harry’s wife’s employers were rational, they’d offer a small pay premium for not using the insurance, as many employers do)

Keith’s story is rather surprising to me because when I worked in a pharmacy (about six years ago), when we billed insurance, we had no say at all in how much they paid us. They each had their official pay scales, and we had to either accept them or not do business with that insurance company, and refuse patients. Several insurance companies paid below our cost, so we had to send our patients away. The insurance companies can get away with it because grocery stores accept losses from the pharmacy to get people in the door.


Hoodie Craw 10.25.03 at 5:11 am

Health Insurance, David Naylor, is a form of insurance that pays all or part of the cost of any medical treatment you may require while you are insured. The british concept of healthcare that is “free at the point of use” is unknown, or derided as “socialized medicine” here in the US. You incur fees for every medical service that you avail yourself of – doctor visits, blood tests, prescription medications, surgery, consults, ambulance or paramedic, everything – and those fees are non-trivial. Health Insurance helps you pay for it. How much it helps depends on your plan and your premium, and also on which medical practises you use. You might have 100% coverage for a heart attack, say, but have only 60% for a crown on a tooth. The insurers have “networks” of preferred practitioners with whom they have struck discount deals. You are free to go outside that network, often, but you will most likely have to pay a greater percentage of the fee yourself if you do. People without insurance have to pay everything out of their own pocket, and without the benefit of any kind of discount. Double-whammy.

Health insurance premiums are expensive, and are often paid by employers as part of a benefits package. Your employer will only offer you one or two “plans” to choose from, which they themselves choose for their own benefit: if they’re paying for it, they’re choosing the plan, simple as that. However, most employers require that you pay some [relatively] small part of the premium out of your pay. This is tax-deductable. You are of course free to waive all benefits that your employer offers, but in that case you choose your own insurance provider and a plan that suits you, but pay the entirety of the premium yourself.
And, because you are just one person rather than one of a large group of employees, you have no leverage with the insurers, so you’ll end-up paying top-whack premiums for the privilege. The money your employer would have paid for your health insurance does not get added to your salary.

For poor or uninsured people, the government provides “Medicare” to help pay for their medical costs. But if I’m honest, I have no idea how Medicare works. I don’t think everyone qualifies for it, and I don’t think it covers very much. You won’t be turned-away from an Emergency Room, but anything outside that, you’re on your own. I think.

Health insurance prices have risen substantially recently, and are rising still. It is a weird situation: premiums are rising, coverage is falling, but medical costs have been falling too, if anything, and the health providers (doctors, hospitals, whatever) are in trouble. Where is the money going? To insurers, who are required by law to post a large amount of money as bond, a kind of guarantee of their viability as health insurers. Trouble is, those reserves took a huge hit from the stock market collapse. But they still need to be there, at prescribed levels. Hence rising insurance costs.

You have to opt-in to your employers benefits package at the start of every year. The plans they offer to you will change, one year to the next, better or worse. An awful lot of employers – mine included – will be offering worse packages next year, because they can’t afford to pay for the same level of coverage they’ve been getting this year.


dop 10.25.03 at 5:24 am

extravagent US-type health care, with no limits, at private hospitals

Like this exists? Get really sick, then see how “unlimted” that health insurance really is.


William 10.25.03 at 5:43 am

The irony of the U.S. system is: We have socialized health care. It just isn’t called such, nor is it as effective or inexpensive as a truly socialized system would be.

Let me explain: When an un- or under-insured person gets sick, they wait around until they have to go to the emergency room to get free treatment. (This, of course, is what happens in most cases because the uninsured have no access to preventative care.) Who pays for that? Through cost-shifting and price-increases, all the other patients who have insurance or money to pay the hospital or just taxpayers, in general. So, essentially, we’re already paying for the treatment of the under- and un-insured, albeit in possibly the most expensive, inefficient and ineffective way fathomable.

A former professor of mine had the idea that maybe, rather than going for an all-out national health care system, the U.S. government should just give everyone catastrophic coverage, thereby removing a large amount of liability from private insurers and, hopefully, causing the day-to-day use sort of coverage to cheapen.



Don Hosek 10.25.03 at 8:19 am

I remember during the 92 election, the republicans decrying national health care saying it would let the government pick your doctor.

As opposed to the current system where the insurance company picks my doctor.

Yeesh, if doctor choice is really an issue, design the ^&(#^%& system so that it’s not an issue.


Keith M Ellis 10.25.03 at 9:38 am

David: yes, my story’s definitely true. Here’s a news article about it I found:

King 5 News: Generic Drugs

But I had already discovered all this independently, finding news stories about came later. I first discovered that a friend of mine was paying much, much less for fluoxetine than I was. And of course I know it’s true now from personal experience.

The point you made regarding your own experience working at pharmacy is one that’s not answered by the news article to which I linked. Why are the insurance companies willing to pay so much more than wholesale plus a reasonable markup for fluoxetine or other generics?


Keith M Ellis 10.25.03 at 10:08 am

Hoodie is confusing Medicare with Medicaid.

Medicare is the health care insurance/benefit associated with the national retirement program, Social Security (which also handles permanent disability benefits, as well). Medicare is a huge portion of the federal budget.

Medicaid is a health plan for _a very small portion_ of the poor—specifically children, pregnant women, people on welfare, and other qualifying individuals. (The “people on welfare” part might confuse people, even Americans, since there’s an erroneous belief that American welfare is simply needs-based and all poor people qualify. They do not. The real name of the welfare program is “Aid to Families with Dependent Children”, which tells you much more about who’s eligible and who’s not. This is not at all like the “dole” in other countries.) Medicaid forms a substantial portion of the federal budget, but is much smaller than Medicare, I believe. (Note that Medicaid covers prescription drug benefits, while Medicare does not, although this is the legislative topic of the year.)

Medicare and Medicaid coverage may at one time have been less than average relative to other health insurance, but today it’s about average in terms of coverage, I think.

Basically there is no federal safety net for the poor without health insurance. This is a large number of people (not just the poor): in recent years, it’s estimated that as much as 20% or more of the US population has been completely without health insurance within a single year. I know that in my twenty years as a working adult, I’ve had health insurance for perhaps only a third of those years. This is true for most, or at least many, people under 40, I think; while it is much less true for people over 40. Because uninsured people still get sick, the slack has to be made up somehow. True, a lot of illnesses are simply untreated. Many states and many large municipalities have health care programs for the financially needy, the extent of coverage is usually pretty limited, although it can vary widely. I imagine, however, that most of those eligible are unaware of their eligibility. Finally, most hospitals, for at least liability reasons but also sometimes by law, will never refuse care to someone admitted into the emergency room. This isn’t “free”: costs and debts are incurred, it’s just the the hospitals can’t refuse care. Many people take advantage of this. I personally have for authentic or marginal emergency situations (like the five kidney stones I’ve had); but a not insignificant number of insured attempt to utilize ERs for general medical care.

So, this and the other messages above are a “Health Care in the US Summary” for European readers of CT. :) It’s a mess, isn’t it? It’s much worse than what’s been described, actually.

The national political mood about health care reform has changed considerably since the debacle at the beginning of the Clinton administration. All else being equal, I’d expect a major reform in the next eight years. However, the looming budget crisis complicates matters.


Keith M Ellis 10.25.03 at 10:11 am

Correction: “but a not insignificant number of insured attempt to utilize ERs for general medical care” should read _”uninsured”_, of course.


Harry 10.25.03 at 2:39 pm

Just to confirm Keith: I’m thinking about adding my wife’s employer’s insurance to my own employer’s — even though mine will start costing me a good deal out of pocket, we feel its worth it for keeping our own primary care provider (GP). So the point of getting the other insurance as well is to save us a little bit of the new costs we shall be incurring.

I’m glad the non-Americans find it all so perplexing — makes me feel saner.

IN response, though, to the comment about potential reform — the ballooning deficit is a major problem, not just for that but for any sensible future reforms.

One last thing though — I know a number of small entrepreneurs who bemoan the non-portability of health insurance, believing (I suspect rightly) that it limits the talent pool they have access to as employers. Is there a case that US arrangements are inefficient not only because of the absurd market power they give to drug companies, etc, the hihg levels of bureaucracy, the annual costs incured by the insured who have to revisit and revise decisions, but also because they make labor markets less flexible than they otherwise would be?


David Naylor 10.25.03 at 4:13 pm

The british concept of healthcare that is “free at the point of use” is unknown, or derided as “socialized medicine” here in the US.

Blimey. That’s just so… nineteenth century! :-)

Thanks for filling me in.


David W. 10.25.03 at 5:20 pm

Keith, thanks for the link. Here in my home town, too! I think I can explain some of what’s going on. Officially charged prices are not necessarily what insurance companies will pay. We would give all drugs a “price,” which was always based on our cost, plus a reasonable markup (almost always under 30%). This is what private payers would pay, and a few insurance companies payed us what we said was our price. Actually, I only remember one insurance company that would pay us that amount consistently, and that was the insurance plan for retired longshoreman (who have one of the most powerful unions around).

So, it would work like this:
Drug X cost us 85 dollars for a month’s supply.
Our “price” would be about 110. About 1/3 of our customers would pay this price. The rest would just pick it up for free or pay a co-pay (generally 5-10 dollars). We’d then submit a claim to insurance company #1 and they’d offer to pay us, say, 95 dollars. If an insurance company began to lower their rates such that they were paying us five dollars or less on average, we’d tell the customers we couldn’t accept that insurance plan anymore. And we’d take it. This is also how government payers (AFDC, Indian Health) also worked, and they were even stingier.

Now, many–perhaps most–of those who paid cash had insurance, they just did the billing themselves. In fact, some customers had charge accounts for their prescriptions, and would bring in the endorsed checks from their insurance companies when they came in. These insurance plans tended to pay what the customers asked.

As you might have discerned, those with generous insurance plans or those who paid cash were subsidizing those with less generous plans. This was an independent store, and I worked their for the last two years it was open. It was still profitable, but the insurance company squeezes were getting worse, and the owners were in their late 50’s and wanted to retire soon. So they sold their inventory and files to Safeway, took jobs there for five years, and then retired. In the small town where this took place, there were six independent pharmacies a decade ago. Now, there is only one. All the other five sold to grocery stores for the same reason–the insurance company squeeze was too great to withstand.

So, getting back to Walgreens. I suspect that most insurance companies are not actually paying these prices. I suspect that instead, they (Walgreens) are taking advantage of the private payers and the few with insurance that pays what they are asked to. At those kind of markups, this seems highly unethical, but people are so trained to not question high prices that if they just go to one pharmacy all the time, they wouldn’t know what was happening. But I don’t see insurance companies paying these rates.

Why was the situation becoming so rapidly intolerable for independent pharmacies in the US? First of all, because grocery stores are willing to operate at a loss (looking at that article, there is simply no way Costco is making money on the price they’re charging). Secondly, larger chains are able to negotiate better prices from drug wholesalers. Third, back then (I don’t know if this is still the case) some insurance companies were invested in mail order drug enterprises, and there was some cross ownership with insurance companies and generic drug manufacturers. (I don’t know for a fact if this last point is true; that’s what the pharmacy owners thought, and they were rather sensible and not prone to conspiracy theories in their politics).

Just thinking about this one small slice of the health care structure here in the US is depressing and confusing. If I were from a sane country, I’d be hard pressed to believe this nonsense.


Katie 10.25.03 at 5:34 pm


Instead of the government providing everyone with catastrophic coverage (which still leaves the uncovered poor waiting until there’s a catastrophe to get treatment), why not have the government cover preventative care for everyone? In terms of both people’s health and the cost of care, it seems as if this would be better…


infamouse 10.25.03 at 9:23 pm

Part of the problem with health care in the US is programs like Medicare. For example, Medicare will pay $50 for a general practicioner’s appointment. Now, a full-priced appointment is, I would guess, around $200. So every time a doctor sees a retired person he loses $150. Where does he make that money up? He charges everyone else more. Government health care programs actually caused the rate of increase in prices to double! Now, there are a lot of retired people who go to the doctor frequently, and due to the Baby Boomers, that number is going to jump even higher. There was an article in the NYTimes recently on the use and abuse of Medicare by retired people. It was shocking to say the least. I hate to say it but they’re like vultures. Any excuse to go to a doctor. Especially an expensive specialist. For some of the people the interviewer spoke with, it’s their entire lifestyle. I don’t begrudge the retired their health care, but this was ridiculous.

I think that employees should be able to opt into a program with the insurance company where they pay a little extra every month and, in the case they lose their jobs, the health insurance will continue covering them for free until they have another job with benefits, at most 6 months.

Also, I’m for privatizing Social Security and Medicare. All the money the government takes from your paychecks would go straight into a medical savings account and a social security account. You could cap the med account at something like $1 million. Everyone, even billionaires, would be required to pay in. People who don’t have enough money in their accounts because they’re poor, etc would have their accounts filled to a certain level every ten years starting at age 50. There are lots of ways to work it.

Also, another problem with health care in the US is that the health care companies have an anti-trust exemption! I’m all for keeping the free market system but the current structure is sheer lunacy.


Hoodie Craw 10.25.03 at 10:37 pm

“Hoodie is confusing Medicare with Medicaid.”

He certainly is. Hoodie has been in the US for five years, and the whole of the health insurance business still confuses the tits off him.


self 10.25.03 at 10:56 pm

It’s not quite as simple as switching dilemna based on costs of “health care packages” provided by different GP networks sponsored by different employers at different levels of cost-shifitng(copay and coins). The issues of wage-shifting and plan-membership may be key…
There are certainly costs of insurance passed on to the wage structure. These are more burdensome to occupations whose negotiations are lower priority to the employer (translation: lower wage jobs will get screwed on healthcare first). If the position that provides the family’s insurance is less than full-time this is coverage at risk of being reclassified. Employer changes job classification, insurance terms altered.
If you switched and then realized this scenario was unfolding and move back, there may be costs to that move as well. There may be screening periods that prevent immediate access to certain plans. You may have to wait to get back on your preferred doctor’s roster. Other close calls on coverage may not be approved with a record of switching out of plans.
Sooooooo, it’s really not a pretty picture but you must try to assess how the employer’s choice of dilemna design signals their credibility on not changing the terms at every adverse insurance cost shock. Not an easy task…but the intent of the employer is undoubtedly to shift some of the risks of employer-provided health insurance to the workers. There is no way around that with double-digit premium cost increases as frequent as they’ve been.
One thing is for certain. If most of these burdens are falling disproportionately on the low-wage occupations, there is something undeniably wrong with the tax-deductible status of employer-provided health insurance contributions. Continued subsidization of a system whose existence is founded on expanding coverage opportunities for low-income workers (see ERISA language), when the incentives produce the opposite result, is a mockery of a sham of a travesty, or something like that.


Ophelia Benson 10.25.03 at 11:02 pm

That’s because it’s a ridiculous over-complicated mess that costs a fortune and doesn’t do the job. Other than that, it’s swell.


Maureen 10.26.03 at 2:55 am

To add to the whole health insurance mess is this: I have adequate health insurance through my employer, which is not expensive for me and my family. However, I do not have the flexibility at my job to take time off to visit the doctor. I have a minimal amount of paid vacation time, which I mistakenly used for an actual vacation, and now I can’t go to the doctor until next year, when I get more vacation time, because not only do I not have any more paid time to take off, we are so understaffed that they won’t let me take unpaid time off.

I know that isn’t really anything to do with insurance, I just wanted to throw in a typical experience for a lower middle class wage earner such as myself. Have insurance: don’t have the time to actually use it.


Nicholas Weininger 10.26.03 at 4:16 pm

Harry– there is certainly a case to be made that the current system makes the labor market less flexible and disadvantages small businesses, because of the differential tax treatment given to employer-bought vs. individual-bought insurance.

Not to toot my own horn or anything, but I made this case (and linked to a Ronald Bailey article that makes some suggestions for how to fix it) at:


Melanie 10.27.03 at 12:41 am


You had a paid vacation? Wow. I’ve never had one that wasn’t called “unemployment.”


Maureen 10.27.03 at 3:44 am


It’s pretty typical around here for offices to offer at least a week of vacation. Now, at my old job, my good job, the one that I got laid off from, the one where I made $18,000 more per year than I do now? At that job, I got 3 weeks paid vacation because I had been there for more than 5 years.

Now, though, I get my week until I’ve been here 2 years, then I get two weeks. And that’s all I’ll get until I’ve been here for 10 years, when I get an extra week. I sincerely hope I don’t make it that far, though, because I hate my job.

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