odiousgambit
odiousgambit
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March 19th, 2015 at 7:18:09 AM permalink
Would you pay $400/mo to get $100,000 worth of insurance against an event that has a probability of happening of about 1/50 annually?
the next time Dame Fortune toys with your heart, your soul and your wallet, raise your glass and praise her thus: “Thanks for nothing, you cold-hearted, evil, damnable, nefarious, low-life, malicious monster from Hell!”   She is, after all, stone deaf. ... Arnold Snyder
HowMany
HowMany
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March 19th, 2015 at 7:29:07 AM permalink
I'm not an actuary, but this is easy.

My answer is HELL NO.
odiousgambit
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March 19th, 2015 at 7:37:54 AM permalink
certainly 50 people could pay 300/mo and come up with a $180k pool and allow for profit too; and allow for non-average years

but is that how it is calculated?
the next time Dame Fortune toys with your heart, your soul and your wallet, raise your glass and praise her thus: “Thanks for nothing, you cold-hearted, evil, damnable, nefarious, low-life, malicious monster from Hell!”   She is, after all, stone deaf. ... Arnold Snyder
kenarman
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March 19th, 2015 at 7:50:42 AM permalink
We need to know the cost of the event. Is it variable and can be more or less than the $100,000 or is it exactly that amount everytime?
Be careful when you follow the masses, the M is sometimes silent.
ThatDonGuy
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March 19th, 2015 at 7:56:56 AM permalink
The quick version: the probability of the event not happening in 20 years is about 2/3, in which case, you are down $9600.

Even if it does pay out, it's probably subject to income tax, whereas the $400/month probably isn't deductible unless your other medical expenses exceed 10% of your income.

You might as well put the money in a mattress.

Of course, that $400/month would go up with time, and instead of a mattress, you can put it in a bank and scratch out a point or two of interest. (Remember when pretty much every savings account paid at least 5% a year?)
rsactuary
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March 19th, 2015 at 7:59:26 AM permalink
Quote: HowMany

I'm not an actuary, but this is easy.

My answer is HELL NO.



I am an actuary and my answer is HELL NO. However, honestly, probably need some more info as others have suggested.
odiousgambit
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March 19th, 2015 at 8:30:48 AM permalink
I have not discovered a way of getting good information, the above is what I have clumsily come up with as a worst case scenario

can anyone guess at what I am getting at?

It's very odd insurance. It's not like car insurance, where you either have it or you don't. If car insurance was like this is, you could wait until you had an accident, then get car insurance and have that insurance cover the damages. I'll grant you that you would not be able to cover *all* the damages since you can't immediately get the insurance but might have to wait; you could manage the risk of how long you might have to wait.

That ought to be enough, but more hints later if needed.
the next time Dame Fortune toys with your heart, your soul and your wallet, raise your glass and praise her thus: “Thanks for nothing, you cold-hearted, evil, damnable, nefarious, low-life, malicious monster from Hell!”   She is, after all, stone deaf. ... Arnold Snyder
ThatDonGuy
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March 19th, 2015 at 8:47:04 AM permalink
Quote: odiousgambit

I have not discovered a way of getting good information, the above is what I have clumsily come up with as a worst case scenario

can anyone guess at what I am getting at?


It sounds like a "pay the penalty tax for not having health insurance until you need it, then get it, since you can't be turned down under ACA, although I am under the impression that they do have the right to wait a certain length of time (six months?) before the insurance actually kicks in" health care plan. The annual tax is 2.5% of your AGI; in order for it to be $4800, you need to make $192,000 / year.

I hear more and more about "medical tourism" - that is, flying to a different country to have a medical procedure done, since the cost there plus the cost of the round-trip flight is less than the cost to have it done in the USA (and considering that my insurance has switched me from name brands to generics, I'm surprised they didn't require me to do this as well when I needed a colonoscopy). What I want to know is, if something goes wrong in the other country, what recourse do you have other than trying to sue there, which requires you to spend a considerable amount of time in that country, and that assumes the country doesn't exempt doctors from such lawsuits in the first place? There has to be a reason health care is much cheaper there...
odiousgambit
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March 19th, 2015 at 11:30:28 AM permalink
Quote: ThatDonGuy

It sounds like a "pay the penalty tax for not having health insurance until you need it, then get it, since you can't be turned down under ACA



exactamundo

Quote:

although I am under the impression that they do have the right to wait a certain length of time (six months?) before the insurance actually kicks in" health care plan.



Ew. that needs to be checked out. Certainly there is a sign-up period you have to wait for. I signed up late last year and got no warning the insurance would have a waiting period.

Quote:

The annual tax is 2.5% of your AGI



in 2016 and after, 2% for 2015

Quote:

in order for it to be $4800



The $400/mo I came up with is the difference between paying the full penalty that I am likely to be hit with, and what I would be paying for insurance and then have no penalty to pay. Another question then is, is it possible to pay for 6 months out of the year, pay a partial penalty, and time your payments so that you are without coverage only just before the next sign-up period comes around, then sign up again.* I am going to have the answer to some of this when I do my taxes.

As far as a worst case scenario, it might be, say, a terrible car accident that racks up an instant monumental bill that cannot be paid because of insurance lapse. Even after tax breaks this could be $100,000, and of course even more. That's a big risk, but does that mean a person has to get this insurance no matter what it costs? Surely we can all name a figure that makes it pretty crazy to pay it, and it is a lot now, and there is a $6000 deductible. That means I get to pay out of pocket for everything that isn't catastrophic.

*I would feel justified in gaming the system, but won't bother you with that justification. Let's just say I am a no good SOB for contemplating this and leave it at that
the next time Dame Fortune toys with your heart, your soul and your wallet, raise your glass and praise her thus: “Thanks for nothing, you cold-hearted, evil, damnable, nefarious, low-life, malicious monster from Hell!”   She is, after all, stone deaf. ... Arnold Snyder
rsactuary
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March 19th, 2015 at 11:37:44 AM permalink
Working in health insurance, I can tell you that a $100,000 bill is nothing any more. Million dollar claims are easy to come by.
odiousgambit
odiousgambit
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March 19th, 2015 at 11:44:19 AM permalink
Quote: rsactuary

Working in health insurance, I can tell you that a $100,000 bill is nothing any more. Million dollar claims are easy to come by.



I'm sure of that. Social Security says there is about a 1/62 [edit] chance of death for a 65 yr old man [I'm younger]. What are the chances of a horrendous bill during a 3 month insurance lapse?

I no longer drive for work.

SS link: http://www.ssa.gov/oact/STATS/table4c6.html
the next time Dame Fortune toys with your heart, your soul and your wallet, raise your glass and praise her thus: “Thanks for nothing, you cold-hearted, evil, damnable, nefarious, low-life, malicious monster from Hell!”   She is, after all, stone deaf. ... Arnold Snyder
RaleighCraps
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March 19th, 2015 at 2:09:39 PM permalink
Quote: ThatDonGuy

...
I hear more and more about "medical tourism" - that is, flying to a different country to have a medical procedure done, since the cost there plus the cost of the round-trip flight is less than the cost to have it done in the USA (and considering that my insurance has switched me from name brands to generics, I'm surprised they didn't require me to do this as well when I needed a colonoscopy). What I want to know is, if something goes wrong in the other country, what recourse do you have other than trying to sue there, which requires you to spend a considerable amount of time in that country, and that assumes the country doesn't exempt doctors from such lawsuits in the first place? There has to be a reason health care is much cheaper there...



I think your last sentence covers it. The medical is so cheap because the doctors are not having to cover $300,000 liability coverage costs. I don't want to derail this topic, but we in the US really are all a stupid bunch with all of the 'free money' most of us seek with the stupid ass lawsuits all the time. Everybody views it as 'free money', when in actuality, we are all paying through the nose for a select few to win the lawsuit sweepstakes.
I bet it is next to impossible to sue for any sort of medical damages in other countries.
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GWAE
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March 19th, 2015 at 3:15:47 PM permalink
OG, you are talking about catastrophic events. What about kidney stones to a tune of 14k or gallbladder removal for 19k. Those "little" procedurea can add up to me more than that catastrophic event.

I went 8 years with no insurance and are grateful that noting ever happened. I had kidney stones last year and was very happy that I had insurance. I did have to pay my 2k deductible but that was better tha . The 14k they would have charged with no insurance.
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odiousgambit
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March 19th, 2015 at 3:41:04 PM permalink
Quote: GWAE

OG, you are talking about catastrophic events. What about kidney stones to a tune of 14k or gallbladder removal for 19k. Those "little" procedurea can add up to me more than that catastrophic event.

I went 8 years with no insurance and are grateful that noting ever happened. I had kidney stones last year and was very happy that I had insurance. I did have to pay my 2k deductible but that was better tha . The 14k they would have charged with no insurance.



there are complications, yes

without insurance, you have to negotiate your own prices too. That is, if you can
the next time Dame Fortune toys with your heart, your soul and your wallet, raise your glass and praise her thus: “Thanks for nothing, you cold-hearted, evil, damnable, nefarious, low-life, malicious monster from Hell!”   She is, after all, stone deaf. ... Arnold Snyder
odiousgambit
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March 20th, 2015 at 6:26:02 AM permalink
Let's turn this upside down

assumption: there is a price point at which even the most necessary insurance has to be declined. [I sure would like to know how that might be determined]

a healthy non-smoker seldom traveling by car, who just had a checkup, might decline to pay, especially since he can sign up again later.

is it in fact possible that he will then be doing his civic duty by paying the penalty, helping fund the subsidy for those in need?
the next time Dame Fortune toys with your heart, your soul and your wallet, raise your glass and praise her thus: “Thanks for nothing, you cold-hearted, evil, damnable, nefarious, low-life, malicious monster from Hell!”   She is, after all, stone deaf. ... Arnold Snyder
odiousgambit
odiousgambit
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March 24th, 2015 at 4:36:12 AM permalink
development: turns out those health insurance premiums were tax deductible. Apparently that is the case for self-employed or retired.

So, actually it works out OK. Along with the Long Term Care Insurance that we have, it means we are pretty much assured to be able to get to the point of deductible health care expenses.

I'll just pay those premiums, high as they are. Guess what is higher, my health care premiums [just mine], or the Long Term Care premiums for me and my wife both?

My premiums. But if I get pregnant, I'm all set
the next time Dame Fortune toys with your heart, your soul and your wallet, raise your glass and praise her thus: “Thanks for nothing, you cold-hearted, evil, damnable, nefarious, low-life, malicious monster from Hell!”   She is, after all, stone deaf. ... Arnold Snyder
Actuarial
Actuarial
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March 24th, 2015 at 5:47:00 AM permalink
Quote: odiousgambit

Let's turn this upside down

assumption: there is a price point at which even the most necessary insurance has to be declined. [I sure would like to know how that might be determined]



Thanks for mentioning me by name in your title!

To answer your question, yes, at least on the P/C side one of the social criteria of ratemaking is affordability. The hard part with finding a definitive price point for the necessity of insurance is the difficulty in defining one's own risk appetite, or if it's a government-required product such as health insurance, deciphering the aggregate risk tolerance that the government thinks you ought to have. Insurance is not designed to be an isolated +EV bet, but it does help lower variance, which is hard to consistently value.

I'd actually be interested to see what happens if you don't pay the penalty. It's not a tax, they can't come after your wages. My health career is a few years behind me, but I remember an issue coming up over the ability to enforce the uninsured penalty.
Actuarial
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March 24th, 2015 at 5:48:15 AM permalink
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