Mind the gap

From today’s Houston Chronicle:

As employees face higher co-pays, deductibles and health care premiums, a relatively new insurance product has become increasingly popular.

It’s known as “gap” or “bridge” insurance, and it covers some of the out-of-pocket health care costs that are becoming more difficult for employees to shoulder, such as annual deductibles that are rising to $1,000, $2,500 or even $5,000.

This isn’t a good long-term solution, though I can see how short-term some might like such plans. Employers should hate it, long-term. Employees, if they could think long-term too, probably shouldn’t be happy about this either. Thinking financially, insurance companies offering gap coverage (but not others) and health care/product providers might be happy about this.

Let’s put aside whether these “gap” policies provide good coverage or are “worth the price,” issues the article explores. Just recognize that this is similar to what Medigap or supplements are to Medicare.

Here is where I could explain a problem with such gap coverage. To cut right to the punchline, it undermines the cost-saving goal of higher cost-sharing. Rather than explain this, I’ll leave it as an exercise for the reader.

Hint 1: think moral hazard.

Hint 2: think about who is paying for most of the cost of care.

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