Unexpectedly Intriguing!
April 7, 2010

Welcome to the 102nd edition of the Cavalcade of Risk, the only blog carnival dedicated to exploring all the ways that people can choose to deal with the possibility of misfortune in their lives!

Chance of Going to Hospital
Age Group Female Male
Less than 1 1 in 3 1 in 2
1 - 10 1 in 10 1 in 8
10 - 20 1 in 9 1 in 10
20 - 30 1 in 4 1 in 8
30 - 40 1 in 3 1 in 6
40 - 50 1 in 4 1 in 4
50 - 60 1 in 3 1 in 3
60 - 70 1 in 2 1 in 2
70 and Older 4 in 5 (1 in 1.25) 4 in 5 (1 in 1.25)
Here's a case in point: the recently passed health reform legislation in the United States. Ideally, this legislation is intended to provide health insurance coverage to all Americans, regardless of their current state of health. Unfortunately, the new law provides powerful incentives that can encourage healthy individuals to drop their current health insurance coverage altogether.

Here's how that works. The new law mandates all individuals in the United States to buy health insurance. To enforce that mandate, the law also imposes a penalty tax for non-compliance, which will be enforced by the IRS. However, since the law also requires health insurers to provide immediate coverage even if an individual has a pre-existing condition, an individual could reasonably choose to drop their insurance coverage, pay the much less expensive tax penalty instead, and pocket the difference as savings until they actually might need coverage, with the insurers compelled by law to provide it on demand.

In a sense, that choice is no different than deciding whether or not to play the lottery based on the odds of winning, with the price of a ticket being represented by the tax penalty and the grand prize being the potential savings and the odds determined by the probability of needing health insurance.

Income, Health Insurance Costs and Probability Data
Input Data Values
Annual Income
Cost of Health Insurance Policy
Health Insurance Policy Type
Odds of Needing Health Insurance
[1 in ...]


Does It Make Sense to Keep or Drop Current Health Insurance Coverage Under "ObamaCare"?
Calculated Results Values
Annual Tax Penalty for Being Uninsured After 2015 (the Price of a "Lottery Ticket" Every Year)
Likely Accumulated Savings from Dropping Coverage Over Several Years (the "Prize for Winning")
One Year Cost of "Losing the Lottery" (Tax Penalty + Cost of Health Insurance)
The Bottom Line
But would dropping insurance coverage actually make sense for healthy individuals? To find out, we've built a tool to run those kinds of numbers! USA Today reports that the average annual premium for an individual health insurance policy in 2009 was $4,824 (or $13,375 per family).

That contrasts with a potential penalty tax of the higher of either $695 per individual (or $2,085 per family) or 2.5% of annual income, which will go into effect in 2016 (HT: Bob Vineyard). So the only question left is "what are the odds of one needing health insurance on short notice?"

We'll define those odds as the chance that an individual will need care in a hospital. We found the statistics for Australia, which breaks those odds down by age and gender, and which we'll assume are similar for individuals in the United States.

Playing with the numbers in our tool, what we find is that the less likely an individual will need medical care, the more it is to their advantage to drop their current health care coverage and become uninsured, buying it only if it becomes necessary, then to drop it again once its not needed. Just like they've already started doing in Massachusetts, where a similar individual mandate for purchasing health insurance has been the law for several years.

We also find that it takes a very high level of income to justify continuing one's health insurance coverage. In both cases, the worst off an individual would be is if they must pay both the tax penalty and the annual health insurance premium year they require it. But then, if enough people drop their coverage to pocket the savings, look for health insurance premiums to rise at rates even faster than they do today!...

So that's our contribution to this week's Cavalcade of Risk, exploring just one aspect of risk. But that's not the only risk we'll explore in this edition of the Cavalcade!

It turns out that even submitting a post for consideration to the Cavalcade of Risk poses risks! Namely, one we even specifically warned contributors about:

Soon, we'll be hosting the Cavalcade of Risk. We do have something new and unique planned for the carnival, but we should warn all contributors now that we will be using our well-established Cavalcade of Risk rating system. If there are those among you who dare anger the host, you'll find out that there is indeed a risk to contributing anything less than a well-written, on-topic post to the Cavalcade.

Oh, yes, it's back! Our next table shows how to interpret the ratings we'll present for each post contributed to this week's Cavalcade.

Blog Post Rating System for Blog Carnivals
Topicality
[Capital Letter]
Information Quality
[Small Letter]
Readability
[Number]
A - Fully On Topic
B - Related Topic
C - Way Off Topic
D - Spam
a - Makes You Smarter
b - Makes You Informed
c - Makes You Stupider
1 - Highly Readable
2 - Average Quality
3 - Potentially Painful
Here, a post with the rating Aa1 is one that is fully on topic, will make you smarter and is highly readable. By contrast, reading a post with the rating Dc3 would be like reading all 2409 pages of the Patient Protection and Affordable Care Act in one sitting, then taking each page and slicing the skin on your fingertips with the edges, but less pleasant. And before you say anything, we do know that "c" should say "Makes you more stupid," but we figure that if you have read or have written enough of those kind of posts that your language processing skills are such that you wouldn't notice if we didn't point it out ourselves....

Had enough set up? Here's the 102nd edition of the Cavalcade of Risk - feel free to click the column headings to dynamically sort the entries according to the indicated category (If you're accessing the Cavalcade from an RSS news feed, you'll need to click through to our site to get that functionality....)

Cavalcade of Risk #102
Date Contributed Post Title Blog Name Rating Remark
2010-03-23 Problem Solving Interview Questions and Answers Job Interview & Career Guide Cc3 We hate to lead with such a dog, but evidently, Nissim Ziv just didn't get the memo. Worse, the strategies offered neither solve problems or work in answering interview questions….
2010-03-23 100 Personal Finance Posts Every College Student Needs to Read Career Overview Cc3 Elaine Murphy didn't get the memo either, as we see from this sorry excuse for a linkfest, which spans such non-risk related items like "starting a budget" and "smart habits" (does "follow directions" really have no place among the 100?!)
2010-03-27 When Safety Runs Amok--To Whom It May Concern Wisdom From Wenchypoo's Mental Wastebasket Ab2 Leave it to Wenchy to bring us back to topic! Here, she quotes Top Gear's James May's plan to launch a simple helium-filled balloon from a town square to show what hoops governments require people to go through for the sake of assessing the risks of such simple things to public safety.
2010-03-27 Just how good is old weezy (Warren Buffet)? Living in Volatility Cb2 LivinginVol provides an off-topic discussion of why the Sharpe ratio is only really good for quick and dirty assessments for different investment options, and introduces the Omega ratio along the way to revealing just how effectively Warren Buffett has outperformed many "market-beating" strategies.
2010-03-29 5 Ways You Can Get New Fashions for Pennies on the Dollar Fashion Merchandising Colleges Cc3 Ouch! What were you thinking when you submitted this post to the Cavalcade of Risk, Mitch Smith?! And are you really suggesting that buying up crappy fashions from the '80s on the cheap today in the hope that they will soon come back into style as vintage fashion in the future is a good idea? (And yes, we just made Mitch's post more about risk than he did!)
2010-03-29 80 Essential Blogs for the Modern-Day Marketing Student Online Colleges.net Cc3 Ana Paula, we'd like to you meet Elaine Murphy. We think you guys have a lot in common.
2010-03-29 Time is Money: The Best Times to Do Everything (100 Tricks & Tips) Online Degrees.net Cc3 Ana Paula, Elaine Murphy, this is David Garcia. We did an e-Harmony analysis of your posts and discovered that the three of you have about 280 degrees of compatibility with each other....
2010-03-31 Overseas Student Tax Tips Tax Return Blog Cb2 David de Souza doesn't talk about risk, but he does answer some basic questions for students who worked while abroad for their studies.
2010-04-01 Modeling the spread of H1N1 in the Internet age Healthcare Economist Aa2 Jason Shafrin considers how the Internet might affect people's behavior in avoiding exposure to potential epidemics.
2010-04-01 Long Term Care Insurance Quotes: How Much Do You Need? Good Financial Cents Aa1 The likelihood that you'll need long-term care is greater than that of Shaquille O'Neal hitting a free throw. That tidbit, and a wealth of information, make Jeff Rose's post a pretty good starting place for finding out more about long-term care insurance options.
2010-04-02 Is Renter's Insurance Worth the Cost? The Dough Roller Ab2 Michael went shopping for renter's insurance and learned a lot about just what it covers. Still, he has mixed feelings about whether it fits his situation.
2010-04-02 The Types of Insurance You Need Free Money Finance Ab2 FMF offers his take on the five types of insurance that Dave Ramsey recommends in The Total Money Makeover.
2010-04-02 Georgia's High Risk Pool InsureBlog Aa2 Bob Vineyard takes a look under the hood of the new "High Risk Pools" mandated by ObamaCare, as they might apply in states like Georgia that don't already have them.
2010-04-02 Upromise Credit Card Review: $25 Bonus and 10 Month Balance Transfer PT Money Dc3 PT nails our bottom of the basement trifecta with a lame review of Upromise's credit card, complete with a link to "apply online now"!
2010-04-02 Retirement - 401(k) - Where Did All The Money Go? Looted! FIRE Finance Aa2 What can you do if you check on your 401(k) balance and discover it isn't there (and not because the market went south)? FIRE Finance outlines who might be exposed to that kind of risk and what steps can be taken if it happens to you!
2010-04-02 Selecting An Insurance Company – The Key Factor To Consider MORE than Finances Ab2 Darren reviews the various ratings agencies that evaluate the health of insurance companies.
2010-04-03 Should You Get Low Cost Life Insurance? Digerati Life Ab2 The Silicon Valley Blogger compares commission-based life insurance products against lower cost options that are fee-based.
2010-04-04 Value Based Insurance Design and the Synergies with the Medical Home, P4P, HIT and Disease Management. We've Only Just Begun Disease Management Care Blog Aa2 Jaan Siderov explores the concept of "Value Based Insurance Design," speculating on how it might fit with existing commercial health insurance features.
2010-04-04 Rescission Still Allowed in Cases of Fraud or Misrepresentation Colorado Health Insurance Insider Aa2 Although pre-existing conditions will no longer be an issue when applying for individual health insurance beginning in 2014, Louise Norris finds that until then, applicants still have to be honest when completing applications for individual health insurance, as rescission will continue be allowed if it is deemed that the applicant committed fraud or intentional misrepresentation when applying for a policy.
2010-04-04 20 Best Blogs for Tax Advice Career Overview Cc3 Mariana Ashley proves that short lists are the way to go for off-topic Cavalcade of Risk contributions. Meanwhile, our second-degree link total hits 300!
2010-04-04 10 Extremely Successful Businesses That Started In College Online Degree Cc3 Isabella Smith sees Mariana Ashley's 20, and raises 10….
2010-04-05 How Health Care Insurance Reform Affects U.S. Employers and their Employees Clarifying Health Ab2 Rick Lindquist describes how the new health insurance laws will affect different-size employers as its various provisions take effect.
2010-04-05 Performance Dis-incentive Programs Workers Comp Insider Ab2 Jon Coppelman tells the story of the Smurfit-Stone Container Corporation, whose motto is "solving it from all sides". As it happens, one of those sides, where a performance incentive program rewarded managers for not reporting workers comp claims, turned out to be, well, illegal!
2010-04-05 What Will It Take GOOG Stock to Steam Ahead to an All-Time High? AlphaProfit MoneyMatters Bb2 Sam Subramanian, PhD, MBA, offers his take on Google, finding that the company's stock price isn't invincible.

The next edition of the Cavalcade of Risk is scheduled for 21 April 2010 at My Wealth Builder. The previous edition appeared at Oz Risk.

On a final note for this edition of the Cavalcade of Risk, Hank Stern is anxious for volunteers to host in May - if you're interested, contact him as soon as possible to reserve a slot!

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