No, health insurance is not something you buy when you fall sick and need to see a Doctor
A friend recently asked me why I write about “all this health insurance stuff”, with the notion that perhaps I get paid to do so or that I am an insurance salesperson with an angle ?. I explained that my passion simply lies in helping people understand more about how health insurance works and yes, facilitating access to purchase health insurance from our partners (upon request).
HMO stands for health maintenance organization, a type of managed care health insurance. As the name implies, one of an HMO’s primary goals is to keep its members healthy
A knowledge gap that needs to be filled
There is such a huge knowledge gap especially here in Nigeria. Most people feel cheated when they pay for health insurance and not get to “use it”. Someone once asked me if it was possible to get a refund!
I drive myself around in the very busy city of Lagos, Nigeria. Anyone who has been to Lagos knows that with the unending traffic, the last thing you want is to get pulled over for a routine stop and search only for the law enforcement officer to find out that you do not have the minimum required third party vehicle insurance. Most of us pay at least five thousand Naira (about $13 USD) to get one and it provides cover for one year. In all my years of driving, however, I never get to use it (worse, don’t even know what it covers). I have never asked for a refund or even complained about it to anyone.
Adverse selection in health insurance happens when sicker people, or those who present a higher risk to the insurer, buy health insurance while healthier people don’t buy it. Adverse selection puts the insurer at a higher risk of losing more money through claims than it had predicted.
The inspiration for the title of this article came from someone who argued that health insurance should only be purchased when the individual is sick and needs to see a doctor, thereby using health insurance at that point as a means to avoid paying medical bills. I explained that under health insurance parlance, that would be referred to as adverse selection, something Health Maintenance Organizations (HMOs) would try to avoid at all costs because such people pose the biggest threat to the entire scheme. If everyone bought health insurance only when they were sick and needed it, all the HMOs would go out of business. The very existence of HMOs is hinged on the probability that only a small percentage of the entire population they cover would fall sick at any given time. The premium collected from the entire population would be used to pay the claims for the ones who are sick and in need of medical care.
A claim is a request for payment by a healthcare provider which is sent to the HMO after rendering services to a beneficiary of the health insurance scheme run by that HMO.
Seeing health insurance through the lens of saving lives
While in truth, having a 100% healthy population would be a dream come true for any HMO, in reality however, this is not possible. So it may help to understand that the premiums paid yearly go to providing for and paying the healthcare bills for people who actually need it. Medical bills quickly run into the millions especially when life-saving surgery is required and only by pulling together, the premiums paid by the healthy population are they able to settle the claims (read bills) from the healthcare provider.
Have you ever tried to buy an umbrella when it is raining? Chances are you will pay a minimum of 2x (if you’re lucky) for the simple reason being that
- You may not have a choice at that point in time
- You could catch a cold walking in the rain without one, leading to a hospital trip ?
So it serves you well to buy a health insurance plan, long before you need it and not when you need it because it may not be available or it may be available at a prohibitive price based on the current situation.