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When Families Insure Their Insurers

Nathan Wilkes had to fight for his son’s life. But Wilkes didn’t take a bullet or fend off an attacking animal; he started his own company.

At age 4, Thomas Wilkes had already run through the lifetime limit on the insurance plan Nathan had through his Denver-area job designing and building data networks. Although the Wilkeses were insured, their insurance company was only obliged to shell out $1 million for any single individual. After the limit, the company left policyholders to manage on their own.

The only way Wilkes could get new insurance that would cover his son was to leave his job and start his own business. So that’s what he did.

While switching to a new insurer allows a person to start from zero toward a new lifetime limit, those who have exceeded the limits of one policy are likely to have difficulty finding another company willing to cover them. For the Wilkes family, simply buying an individual policy for Thomas was never an option. While at his old job, Wilkes had to cover his son separately through the state’s high-risk pool, which cost an additional $25,000 a year and had its own $1 million lifetime cap. Then he left to start his own business, which was guaranteed the right to obtain small-group coverage under Colorado law.

But even the extreme step of leaving his job has not put the father’s mind at ease. The Denver Post reported this month that Wilkes is still worried, because his company’s new policy has a lifetime benefit cap of $6 million, and Thomas might blow through that cap, too.

A benefit cap is nothing to worry about if you can guarantee that you or your loved ones will never need costly treatment. But, of course, if you could predict the future, you might not need insurance in the first place.

Insurance companies are not wrong to limit their risk. The error is in forcing that risk back onto the party least able to do anything about it — the customer. Health insurers should be required to do what life insurers routinely do, which is to buy their own insurance, known as reinsurance, in order to manage risk.

Annual and lifetime caps on otherwise covered medical care ought to be outlawed. Any resulting increase in premiums simply reflects the true costs of American health care today. Those costs are too high — but that is a separate problem which families cannot do anything about.

When he gave his address on health care reform last Wednesday, President Obama said precisely that. Under his plan, the president told Congress, insurance companies “will no longer be able to place some arbitrary cap on the amount of coverage you can receive in a given year or a lifetime.” Obama’s plan also would prevent companies from denying coverage to people who have preexisting conditions. These two measures, combined, would mean that those with high health care costs will neither be forced to switch providers after exceeding lifetime limits nor be forced to stick with a provider because of the fear of not finding coverage elsewhere.

The trade-off for the public, which we all should be willing to accept, is that everyone is required to have health insurance. Period.

In choosing insurance for my company, I have always accepted higher premiums in exchange for knowing that my employees will not be cast off when they need benefits the most. Keeping uncapped insurance can cost more than $1,000 per year per employee, which our company absorbs. Other firms would pass this along to their workers or, in many cases, would simply opt for the less expensive coverage.

According to a study cited in The Washington Post, 55 percent of workers with employer-based coverage in 2007 had a lifetime limit. Though the president’s opposition to insurance benefit caps has drawn little attention, it is one area of the health care debate that should draw wide agreement. It just makes no sense to have American families insure their health insurers against the cost of health care.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us” and Chapter 4, “The Family Business."

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One Response to "When Families Insure Their Insurers"

  • Helen DiNetta
    September 18, 2009 - 8:14 am

    I agree that one of the first steps in dealing with the health insurance problem and its devastating financial effects on families with major illnesses, is to require all people to carry medical insurance. In Massachusetts, where this is the law, my daughter’s university includes a medical insurance coverage charge in her tuition bill. If we opt out of that coverage, we need to prove we have other medical insurance. All other employed people must show proof of coverage on their income tax return or face a tax penalty. Low-income families are subsidized. It’s a good start to a complex problem that also needs to address the issues of illegal immigrants, tort reform and of course, cost.