Why Do We Pay So Much for Health Insurance While Still Meeting Substantial Deductibles?
The puzzle of why health insurance in the United States is so expensive, yet still requires substantial out-of-pocket payments, is a complex one. Deductibles and copays on health insurance policies typically represent a small fraction of the total claim. However, severe surgeries, chronic illnesses, cancer, heart disease, and diabetes can easily cost insurance companies tens of thousands—if not millions—of dollars. Yet, the insured only ends up paying a few thousand dollars out-of-pocket.
Insurance Company Business Models
Insurance companies frequently argue that high deductibles prevent further increases in premium costs. Within the context of their business model, they are correct. However, the current model itself is fundamentally flawed. Healthcare should be considered a public good, funded collectively by the public, rather than an insurance product for health risks. It should be seen as a necessity, like defense, rather than a risk, like weather.
Politics and Healthcare
Conservative governments often favor corporate interests over their constituents. The business model of healthcare is sacrosanct, with customers expected to be financially capable of covering their expenses. Governments' support for insurance companies over the needs of individual citizens is not uncommon. This approach can work until the healthcare system's operating costs drain the resources of the insured, leaving people in financial ruin.
The Business Model in Practice
Insurance companies prioritize maximizing shareholder value. Once they have squeezed their employees to barely above minimum wage, they seek alternative ways to maximize profits. They do this by increasing policy rates, creating rules and loopholes that limit potential liabilities, and reducing payments for services they can no longer avoid. In today’s market, a policy is often considered good if the individual’s annual out-of-pocket expenses are capped at $5,000.
Given that most Americans cannot produce $1,000 in an emergency, even this amount is often out of reach. This explains why medical bankruptcies rank as the most common form of bankruptcy in the United States. Many individuals mistakenly believe they will never get sick, viewing illness as a weakness or a deserved misfortune. It is not until a personal medical crisis strikes that people begin to truly understand the importance of adequate insurance coverage.
The reality of medical expenses and deductibles often comes as a shock. People often underestimate the true costs, thinking that a typical office visit copay of $25 is representative of the entire healthcare landscape. When they face out-of-network exemptions, policy loopholes not covering experimental treatments, and medications that are not included in the formulary, the full extent of the costs becomes clear. At this point, individuals begin to understand that the healthcare system is interdependent, and this realization is often perceived as shameful.
The inherent structure and politics of the American healthcare system seek to place financial burdens on individuals, particularly those with chronic conditions or unexpected illnesses. Critics argue that the current model is flawed, and efforts to reform the system and make healthcare more accessible and less financially devastating are ongoing.