Do I Have Health Insurance?

Until recently, I thought that the healthcare expenses taken out of my paycheck were combined with my employers contribution to buy insurance from a third-party insurance company.That is not the case.

Like many companies, my employer self-insures.  This means that the company actually pays the cost of my care but they enlist a third-party to manage the process.

Using round numbers:  I pay $100/month for health care.  My company contributes $300/month for my health care.  That's roughly $10,000/year combined.  If there are 20,000 people in my company, that means that the company and its employees allot $200MM for the medical care of its employees.  Over the years, the company has been able to estimate that it needs about $200MM per year to cover its employees care and pay to administer the plan and payments.

A portion of that money also goes to buy actual insurance, but not 'health insurance' per se.  Instead, my company buys a policy that protects them from the risk that any given year's ACTUAL spend exceeds $200MM.  Think for example of a company building fire, where suddenly a large percentage of employees require unusually expensive care at the same time.

Now, I work in a relatively safe company compared to other industries like coal mining or deep sea drilling.  Firms like that can be virtually guaranteed to have higher medical costs per person than our company.  Given that, why would my company want to buy insurance from a company that covers these other companies as well?  Such coverage is almost certain to be more expensive than my company's current approach because of the risk sharing involved.

In later blogs I'll extend this analogy to ask why I, as a relatively healthy and health aware person, would want to be a part of a pool of people who are less healthy or at a greater risk of needing medical care.