Seth Godin helps me explain health insurance
This morning Seth Godin explained in few words what I have been trying to tell clients for years about health insurance. Often people hedge their bet against something bad happening; they are willing to spend more to cover the things they imagine might happen. But, this is a huge waste of money if they have a healthy year, sometimes a difference of hundreds of dollars a month.
Godin explains the concept of expected value, the value multiplied by the odds it will happen, in an example of parking your car in a no parking zone.
“If there’s a one in ten chance you’ll get a $50 ticket for parking here, the expected value (the cost) of parking here is $5. Park here enough times, and that’s what it’s going to cost you.”
That is largely why I advise people find a health insurance plan that has a reasonably high deductible, and a lower monthly premium. Pay a little more for the doctor visit or the prescription when unexpected things happen and save money on monthly premiums. If you have more healthy years than unhealthy ones, you will save in the long run. If you want to hedge your bet, open a health savings account and put that money in the bank instead of sending it to the insurance company.