Purchasing Health Insurance Right When You Get Sick

This is more of a question than a comment, but Ramesh Ponnuru brings up a point that’s been bugging me a bit in his column in Bloomberg today. He quotes a piece by Kevin Drum who sarcastically asked if FreedomWorks would pay the health care costs of anyone who was convinced by the organization to forego health insurance and then contracted leukemia. Ponnuru responds:

The other thing Drum misses is that people who “contract leukemia” will be able to buy insurance once they’re sick at the same rate they could have gotten it for when they were well. That’s the part of the Obamacare law that its defenders are usually most keen to emphasize. People who go without insurance while they’re healthy may have to pay a tax — although even at that the Internal Revenue Service will be limited in its methods of collection — and may, if they get sick, find their options for getting insurance limited for a few months.

Since insurers can no longer refuse to cover people with pre-existing conditions, that means that if I don’t have health insurance, but get sick, I immediately can purchase a plan that covers my costs. Thus, I avoid paying for health insurance when I’m healthy, but as soon as I need it, I buy it. But does that really work in practice?

Obamacare is supposed to make purchasing health insurance easier through the online exchanges, but that doesn’t mean it will be a straightforward process as you’re sitting in a hospital. And what about all the costs that accrue before you purchase your plan, but while you’re being diagnosed? Or what if something happens that requires a visit to the ER? Or a serious injury that requires immediate surgery and gives you no time to purchase a plan?

You’re going to be left with some major bills at the end. So I don’t think it’s fair to say that people shouldn’t wait to purchase coverage until right when they get sick. Because it won’t always be possible to do so quickly enough to cover the costs. There is a risk in postponing buying health insurance. It’s certainly much less than it was when insurers could refuse to cover you if you had a preexisting condition. But there is some risk still.

Is that risk enough to make it economically sound to purchase coverage? Well that depends. Purchasing a bronze level plan will cost a certain amount depending on your state. Not purchasing a plan will cost you in two ways: the penalty for not paying the individual mandate and the risk-adjusted amount you’ll pay if you get sick and can’t purchase coverage in time to cover all your costs. Now, that’s not a calculation many people will make. That risk-adjusted amount is incredibly hard to determine. But economic theory has demonstrated that people are loss averse – meaning that when the risk of losses exist, people act in risk-averse fashion.

This is an aspect of the law that I haven’t seen get any coverage. I have seen few people challenge the idea that people will be able to buy coverage immediately and not accrue any costs in the meantime. But that is unlikely to be the case. Ponnuru admits as much in his article and proponents of the law would be smart to point it out as well. After all, if people don’t sign up for health insurance (particularly young people), then the law will fail. Showing people that they can still face substantial costs if they decide to purchase coverage just when they get sick is a good way to convince them to sign up.


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