Upgrade or downgrade?

As Massachusetts works through the details of its universal health plan requirements, there is some danger that we’re going backwards in the area of prescription drug coverage. Consumer advocates have argued successfully that the health insurance plans endorsed by the Connector should include prescription drug coverage. I’m sympathetic with that notion.

On the other hand, it now appears that tens of thousands of already insured residents are going to be forced to “upgrade” their policies to include prescription coverage. That’s unfortunate. If everyone had such insurance, no one in this state would bother going to Costco or Sam’s Club for low-priced generics –and overall spending on drugs would be higher.

When I started my company, we considered buying insurance without prescription benefits. The price difference between plans with and without pharmacy coverage was substantial, and we weren’t taking any prescription drugs at the time. I figured we could save the difference and if we ended up needing expensive drugs we could just suck it up for a while until we could change policies and ride out the waiting period for drug coverage. The only reason we didn’t do it was the tax implications. Health insurance premiums were deductible, but out-of-pocket spending on drugs was not.

There’s a danger in trying to protect consumers by dictating what coverage is adequate. I faced a similar situation in looking into long-term care insurance for a relative. This relative didn’t mind paying up to $500,000 or even $1 million in nursing home costs, but wanted to protect her estate above that. But due to the wisdom of the state legislature, it was impossible to buy coverage where the benefits didn’t kick in immediately. Of course the government was trying to protect people from getting tricked into buying policies they didn’t understand, but the result for my relative was that the available coverage wasn’t worth it.

Let’s be careful in micro-managing health insurance benefit design.

March 20, 2007

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