What Makes A Health Insurance Plan So Expensive?
The most commonly heard complaint about health insurance is that health insurance plans are simply too expensive and, in many cases, are now beyond the reach of many people altogether. So, why is it so hard to find inexpensive individual health plans and just what makes medical insurance so expensive?
The easy answer would be to say that the cost of medicine today is so high that insurance companies have to impose high premiums in order to cover their costs. However, while this is a fair explanation, it is also too simplistic an answer.
The main principle underlying any insurance plan is not that it should meet normal day-to-day expenditure but that it should meet unexpected expenditure that a person would not normally be able to meet, or would find great difficulty in meeting, without insurance. In the normal course of events we would all hope that such events are never going to happen to us and so we would expect to pay for insurance without ever getting anything back.
For example, many people reading this will have driven for many years without ever having an accident and will have paid out thousands of dollars in motor insurance. Other readers will have been involved in a motor accident which resulted in their insurer paying out a sum of money which would literally have forced them into bankruptcy if they had to pay it themselves.
Hundreds of motorists pay their premiums every year without seeing a return and it is this that enables an insurance company to accumulate a pool of money to pay those claims for the small number of motorists who are unfortunate enough to need to make a claim.
That's all very well but what has all this got to do with the cost of health insurance?
Well, history shows us that, unlike many other types of insurance, people have a tendency to purchase health insurance only when they are unhealthy, or feel that they might be developing health problems, and are therefore anticipating substantial or growing medical bills. The result of this is a large number of claims in relation to the number of people insured and gives the insurance companies a number of problems when it comes to trying to accumulate sufficient funds to meet claims.
This is the principle reason why the majority of insurance companies require that people are screened before granting them a health insurance plan and why cover for a person might be restricted or excluded for certain conditions.
A further problem which the insurance companies face is that many people would think twice about using medical facilities and would take better care of themselves if they had to pay their own medical bills. But, when their insurance company is paying the bill, or at least meeting a substantial part of it, people tend not too worry and indeed overuse medical care.
To help solve this problem we started to move away from the traditional indemnity (fee-for-service) health insurance plan towards a process of managed care with the introduction of Health Management Organizations (HMOs). However, this produced a variety of problems and left people with the option of traditional insurance which they couldnā€™t afford or insurance through an HMO which they didnā€™t like. Today therefore we have a mix of the two systems with the arrival of Preferred Provider Organizations (PPOs) and perhaps this will provide a solution to the problem of the overly expensive health insurance plan. Time will tell.
Closed formulary: The provision that only those drugs on a preferred list will be covered by a PBM or MCO.
Employee benefits consultant: A specialist in employee benefits and insurance who is hired by a group buyer to provide advice on a health plan purchase.
Outpatient care: Treatment that is provided to a patient who is able to return home after care without an overnight stay in a hospital or other inpatient facility.
Specialty health maintenance organization (specialty HMO): An organization that uses an HMO model to provide health care services in a subset or single specialty of medical care.
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