Health insurance seeks to protect us against the burden of the costs of certain forms of medical treatment. We often view this as a system designed to reimburse us for the costs of conventional medical treatment, and may even feel disappointed and even cheated when certain amounts are not covered by the system, but this all depends on how we view this coverage.
We often see this insurance as a means of indemnifying us against these costs and don’t really realize that health insurance is indeed a form of insurance with both costs and benefits. When the costs become hidden because a third party is paying for the cost of it, whether that be our employer or the government, then we just see the potential upside of this and miss the potential downside.
Private health insurance plans that are purchased by individuals are more transparent though, where we actually pay the premiums ourselves and have a much better idea of the fact that this really does function as insurance, and where things like co-payments and deductibles can make more sense given that reducing these things would increase premiums.
The fact that what we call health insurance only covers certain medical costs through certain providers is another issue where it comes to the scope of this coverage, which adds to the considerable confusion surrounding what this should be doing and what it actually does.
Whenever we seek to achieve more than the system is designed to provide or should be providing, this will result in inefficiencies. This is the case regardless of whether we pay more out of our pocket than we should, our employers pay more where they could have provided this money to us directly through compensation, or governments spending too much where they could have taxed us less to pay for it.
On an individual level, unless we are paying for the plan directly, there may be little that we can do to affect positive changes, but it still pays to gain a good understanding of how this type of insurance should be used and administered at least from the perspective of it functioning as insurance is supposed to and not just be a way to hide the true costs of health care.
Health insurance, the way that it is set up, does tend to overextend itself and artificially increase the demand for it, and this is a major reason why the costs of conventional medical treatment has skyrocketed. We do pay for this, directly or indirectly, and having less out of pocket costs does not really change this.
Health Insurance Should Not Cover Everything
Whenever we cover something with health insurance, or any insurance for that matter, we need to realize that we are paying a premium, either directly or indirectly, to purchase this coverage.
If we look at an everyday item such as food for instance, imagine paying a premium to insure us against needing to eat, and then looking to make claims on our grocery bills. We can expect to pay more for groceries if we did this because the insurance company will need to make a profit over and above the cost of the groceries, which amounts to the extra cost.
In addition, there are going to be some pretty big administration costs on top of this and this will also add to the cost of the groceries. We then might ask ourselves why we are buying insurance to protect us against buying groceries when we know that we are going to need them and can handle these expenses without the help of insurance, and of course this would be completely ridiculous.
What if our employer was providing this grocery coverage though? This does tend to hide the ridiculousness a bit but it would be no less so. The added costs for the grocery insurance could instead be spent on us by giving us more compensation, and any money that our employer spends on us really is a matter of spending our money, as this forms part of our compensation.
If it’s the government that is administering this grocery insurance program, things become even less transparent, but they are getting this money from us by way of taxation and then spending it inefficiently on this insurance. We would certainly feel entitled here and would want every single item we buy covered, not being really aware enough that we’re asking to pay quite a bit more for everything when this happens.
Although we might think that there would be a big difference between groceries and medical expenses, when it comes to medical expenses of a more minor nature, ones that are either routine or would not incur a great financial burden, expecting or even wanting to cover such things with insurance isn’t any different than looking to insure against other expenses that we can otherwise manage.
We also do not want to cover the part of the medical expense that we can bear without help from the insurer, meaning that we should want to pay the first part of any claim no matter how large, at least if we understand how insurance should function that is.
The Effects of the Narrow Scope of Health Insurance
People also complain about the narrow scope of health insurance coverage, where it only tends to cover the most conventional of medical treatments, and generally disallow claims for any treatment that falls outside this realm, even if it is delivered by an MD. There are many medical practitioners these days who use a combination of standard and natural treatment protocols and even though this form of medical treatment may be more effective and cost efficient, health insurance will not reimburse for these treatments.
While this does serve to sway people away from what we call functional medicine, where they are captive or at least see themselves as captive to conventional medicine, the reason why insurance companies take this approach is that they are naturally inclined to exclude things unless there is sufficient demand to force them to pay out for certain things.
Insurance companies are ultimately businesses and they really don’t have an agenda here aside from making money, even though it might be true that they do not have a very good understanding of how preventative medicine and more effective treatment protocols may reduce the amount they pay out.
There is no question that among the various approaches to health care, conventional medical care is by far the costliest, and obscenely so these days. The people do speak though and this is the type of treatment most people want, so this is what ends up being covered by policies.
It actually makes sense to cover conventional procedures and not so much other types of medical treatments because it is the conventional ones that are very expensive and can easily well exceed people’s ability to pay for them. You can wipe out your entire life savings and then some from a single incident, which isn’t so much the case at all with non-conventional medical treatment, which relies on helping the body heal itself more and therefore tend to be far less costly.
Health insurance has greatly increased the demand for these very expensive treatments though, because otherwise people would not be able to afford them, although they of course miss the part that they are paying for these things in the end one way or the other.
To the extent that these treatments are truly necessary to preserve one’s life and well-being, then we could say that we are fortunate to have such a structure in place, but this is not always the case, and often health insurance drives excessive spending on a number of things of dubious value and even ones that may be detrimental to our health instead of benefiting us.
This happens in part at least because the costs are hidden from us, and we therefore don’t do much of a cost benefit analysis when it comes to health care spending, and generally just select whatever is prescribed to us, whether they be worthwhile, necessary, or even wise.
The health care industry, which is also a business, gets to therefore write their own ticket so to speak and drive a lot of business from patients who simply follow their direction without the normal constraint of due consideration, including if enough value is obtained or even if these recommendations are of benefit to their health even if they were provided free of charge.
Expanding the Focus of Health Insurance
This is at the heart of any potential health insurance reform, where we need to examine the role that health insurance plays in escalating medical costs. This is a huge issue and health care gobbles up more and more of our money each passing year, with no end in sight.
Markets always have natural constraints, but with health insurance, when the costs of the system become hidden as they do with this type of insurance, this in itself can drive health care spending far beyond what would be reasonable or possible otherwise.
It all comes down to demand though, and the demand for this spending is definitely there, to the extent that this overwhelms the normal diligence of insurance companies to focus on risk and spending.
With every other form of insurance, the goal of insurers is to look to reduce their overall payouts, and this is why they encourage people to protect themselves against loss and provide price reductions as an incentive.
We do not see this with health insurance though, and this is the area that they need to expand their scope, to be more focused on prevention to look to reduce the amount and size of claims.
The main cause of this is that we as a culture have relied on conventional medicine as our source of medical advice for a very long time, which is a system that is nowhere near as focused on prevention as it should.
Insurance companies generally tend to be very diligent when it comes to looking at data and they need to do the same thing with their approach to health coverage, which will allow them to become more familiar with the evidence that we have about how people’s health should be managed and examine how valid or wise their very strong bias toward conventional medicine is.
The goal needs to be to spend as little as possible on claims and this is not much of a priority at all with health insurance, but it needs to be. It is in the interests of both insurers and the insured that we passionately seek out reforms that would allow more open mindedness when it comes to managing health, and in particular, expanding the scope of health insurance, and there is much to do here.
Robert really stands out in the way that he is able to clarify things through the application of simple economic principles which he also makes easy to understand.