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Underinsurance; A catastrophe in the making

Posted on Jun 12, 2008 by Sergio Ulloa ()

underinsurance, catastrophe in the makingWe've talked quite a bit about the worrying amount of uninsured individuals in the USA, and while we've mentioned underinsurance the focus has more been on the plight of individuals with no insurance whatsoever rather than policyholders whose plans are not overly comprehensive. A recent study, however, has shown that the number of underinsured Americans has increased a staggering 60% from 2003 to 2007. This is equivalent to almost 25 million Americans, and in a bizarre twist, many of these individuals are in the middle to high income ranges.

But what's the issue? Many commentators will say that these underinsured individuals, while not being comprehensively covered by an insurance policy, still have some protection, and due to their above average incomes will be able to contribute towards the cost of any medical treatment that they receive with very little trouble. This may have been true 20 odd years ago, but in the modern world this could be considered slightly delusional.

With the levels medical inflation during the 1990's and early 21st century, specifically in the USA, it is no longer possible for moderately wealthy individuals or families to afford out-of-pocket payments for healthcare. In fact the inability to pay for medical costs has become the number one cause of personal bankruptcy in the USA. The issue is that despite the country having some of the best healthcare services in the world, a large portion of the population is completely unable to afford any treatment.

Now an onlooker may say, sure - but that's individuals with no insurance - people who have insurance should be able to afford this coverage. And they would be right; to a point. The study defined underinsurance as anyone who has an annual health insurance but still contributes 10% of annual income towards medical costs, and whose deductibles were equal to a further 5% of their annual income. Low income individuals who spent 5% of their income on health insurance or deductibles also qualified for this bracket.

Think about that for a second, in the midst of a global credit crisis and worsening economic fortunes for the average American citizen, many of these individuals are spending between 10 and 15 % of their total annual income on healthcare, and for many of these people this is without having ever seen a doctor! Compound the actual deductibles and co-pays on top of this and the situation starts to look extremely grim indeed.

medical inflationWith medical inflation reaching levels never seen before many domestic insurance companies are scaling back coverage, without also scaling back premiums. This is understandable, however it leaves the average policyholder woefully unprotected. International insurance companies are realizing, however, that increased coverage is most definitely needed as the costs continue to rise. A great example of this would be seen with IHI Danmark's travel insurance; over the last year IHI saw the increased need that travelers have for comprehensive protection and raised the overall maximum benefit of the policy to 'Unlimited'. This means that under the new IHI travel policy there is no coverage limit, and this move has seen the company increase the number of policyholders obtaining these short term travel medical insurance policies.

Now obviously the above example would only work for individuals who are planning on being outside of their home country for a period of time, but the idea is clear. In a time when domestic health insurance companies in the USA are scaling back coverage a number of international insurers are going in the opposite direction and providing more.

The point is this, increasing premiums and healthcare costs in conjunction with lowered coverage is leading to more and more Americans finding themselves in a position where they are simply unable to access, or afford, the healthcare that they need. With a 60% increase in the number of underinsured Americans in the last 4 years, and the total number of Americans who are either uninsured or underinsured at 75,000,000, its not hard to see how this situation will worsen in the years to come.

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