Why Health Insurance Is a Crummy Deal

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Illustration by Juxapo

Assuming the government can fix the Healthcare.gov website, millions of Americans will have to do something they've never done before: shop for a plan. This is where it gets tricky. Yes, insurance is good to have. But that doesn't mean it's a good value for everyone. And whether it is or not isn't easy for individuals to calculate.

Actuarial firms calculate risks all the time. So we asked one, Milliman, Inc., to run the numbers. The company looked at the chances of accruing significant medical bills in 2014 for an uninsured adult under the age of 65, and the results are revealing. While everyone worries about catastrophic expenses, they don't happen very often.

What's the chance of accruing medical bills of more than $100,000 next year? Roughly 2 percent. About 24 percent of adults are expected to face medical bills of more than $10,000 in 2014. That's a lot of money for most people, but it's not much different from the cost of health insurance. According to the Kaiser Family Foundation, health insurance premiums for individuals cost about $9,068 per year on average.

The remaining three quarters of the population will incur medical bills that are less than what they pay for health insurance, which is what makes the insurance business the kind of business that investors like Warren Buffett like so much (about two-thirds of his $60 billion personal fortune comes from insurance).

In fact, Milliman estimates a 7 percent chance that an adult incurs nothing at all in health expenses next year. And note that these are for billed amounts. It's often possible for individuals to negotiate a medical charge and wind up paying a lower amount. Medical bills for the uninsured are usually marked up by around 30 percent because providers know they won't always get paid in full.

When choosing coverage, it's smart to take your age and state of health into account. But for some people, opting for the minimum coverage may be the best bet.