Why Buy Health Insurance When Health Reform Offers-Up Such an Inexpensive Put Option?

The Obama health reform legislation has the potential to create some serious adverse selection issues for health insurance companies.

Stated differently, there really does not seem to be a rational basis for purchasing an individual health insurance product under Obamacare.

President Obama’s health reform will impose an individual mandate.  In other words, people will face penalties if they do not purchase health insurance.

However, consider the downside if you do not purchase health insurance:

  • 2.5 percent of household income in excess of the taxpayer’s household income for the taxable year over the threshold amount of income required for income tax return filing, or;
  • $695 per uninsured adult in the household. The fee for an uninsured individual under age 18 is one-half of the adult fee for an adult. The total household penalty may not exceed 300 percent of the per adult penalty ($2,085).
  • No civil or criminal penalties for non-compliance.

Now consider that the average annual health insurance premium for a single person in the health reformed state of Massachusetts (look to Massachusetts, by the way, for a preview of exactly what will play-out on a national level) is $8,537.  The average annual cost for a family policy is $16,987.

Why would anyone in their right mind but health insurance when you can basically have health insurance for a tenth of the cost?

Insurance companies are required to accept all applicants under Obamacare.  Why not just wait to buy insurance until you have a meaningful healthcare expense?  The cost of doing so will be a fraction of the cost of carrying insurance and with guaranteed issue, you will have full coverage whether or not you buy insurance in advance of incurring the expense.

One does not need a Black Scholes calculator to see that Obamacare presents the opportunity to buy an inexpensive put option for healthcare costs.


Consider this statistic from the NY Times article yesterday:

"To illustrate, he offered a statistic on how many people in the 18-to-26 age group, who are largely healthy, have bought individual insurance coverage through his company: 88 people out of 6 million insured by his company statewide. "