Tuesday, August 23, 2011

Losing Sight of the Purpose of Insurance

I have a family full of students whose student fees include a health insurance plan. You might think that the school would see to it that students are offered a sensible plan at a reasonable cost. The plan description I got to see didn’t look very sensible to me.

Flipping open the cover to the first two pages, my eyes were drawn to the giant dismemberments table. The funniest entry (if discussing dismemberment can be funny) is the loss of “One or More Entire Toes” for $50. In what possible way can $50 compensate for a lost toe?

The purpose of insurance is to cover large costs of low probability events. Losing a toe has low probability, but $50? The top end of the table is $25,000 for losing any two of six things: your eyes, hands, and feet. Again, $25,000 is very low compensation for such devastating losses.

The rest of the document is a long string of caps of $100, $1000, $2000, etc. on various mishaps. Real insurance would make you pay the first $100 and cover all of the rest. I can understand why an insurance company prefers to cover only small costs with low caps, but I don’t see why this is any good for students.

6 comments:

  1. The Blunt Bean CounterAugust 23, 2011 at 7:28 AM

    Michael, when you say students,I assume you are talking about children not yet University age. If you have University age students, it is important to note that you can opt out of the University health insurance plan that is built into the University fees and get a credit against tuition if you have a medical plan already in place at work.

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  2. @Mark: That's a good point for readers to understand. Actually, the students in my family are all university age and are opting out of the school's insurance plan. However, I have similar complaints about my own "coverage"; it pays for everything I can afford to pay myself and limits would start to kick in if costs grew to the point where I would find it painful.

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  3. The benefit plan for University students is usually managed by the student association or union and not the University itself. Just a point of clarification.

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  4. @Anonymous: You're right that it is usually the Student Association that manages the benefit plan. To the degree that the student association is independent from the school, the school is not involved.

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  5. I've looked at some medical insurance plans (ie drugs, dental etc) and they are really just health savings accounts.

    With their caps and limitations, they are really just health savings accounts without the tax benefits.

    I like your point about getting insurance only for low probability large cost events. There is a whole industry based on extended warrantees which ignores that philosophy. :)

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  6. @Mike: "They are really just health savings accounts without the tax benefits." That's a good way to sum it up.

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