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Why Is Health Insurance so Complicated? | 5 Minute Video

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Why is health insurance so complicated, while car insurance and life insurance are so simple? Can health insurance be more like, well, insurance? Lanhee Chen, fellow at the Hoover Institution, explains.
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Script:

Americans carry many different forms of insurance. There’s car insurance, home insurance, life insurance, even pet insurance . . . Most of these insurance policies work well and are fairly priced. But there is one glaring exception: health insurance. Only health insurance becomes more complicated and more expensive at the same time. So, the obvious question is: why?

To answer this question, we have to start at the beginning. What is insurance? It’s pretty straight-forward: You pay a monthly fee which provides financial protection against unforeseen, sometimes catastrophic, events. People buy homeowners insurance, for example, to protect themselves from the financial loss incurred in the event of a fire, a flood or theft. Because millions of people are paying into the insurance pool, the pool has enough money to cover the unlucky person whose house does burn down.

And since insurance is meant to share risk, it only stands to reason that higher-risk individuals have to pay more to be insured. Someone who has had two accidents is going to pay more for car insurance than someone who has never had an accident. Why? Because their track record indicates they are more likely to have another accident.

But while insurance provides a bulwark against unforeseen loss, it does not protect against routine expenses. Car insurance protects you in the event that you wind up in a car wreck or your vehicle is stolen, but it doesn’t cover routine maintenance like oil changes, replacing brake pads or tire erosion. Why? Because everyone needs routine oil changes, new brake pads, and new tires. So, there is no risk to protect against.

Health insurance in America works very differently. Many of us have health insurance plans that aren’t insurance at all. They’re really pre-paid health care plans. They cover routine check-ups, less serious illnesses, and recurring expenses like prescription medications in addition to protecting you from a health disaster. All of this has made healthcare much more expensive and complex than any other form of insurance. That is true whether you get your insurance through your employer, through the government, or if you pay for your own plan.

The Affordable Care Act, known as Obamacare, was passed on the promise that it would fix these issues and bring down healthcare costs. But it has actually made the problem much worse.

First, it limited the variety of health insurance plans private companies could offer. It did this by mandating that every plan had to cover the same set of ten health benefits, including preventive care, maternity care, mental health care, and contraception.

Second, Obamacare prevented insurers from charging premiums based on the risk they were assuming. A person with a much higher risk of getting sick couldn’t be charged more than a person with a much lower chance.

These two aspects of Obamacare – requiring all policies to have certain coverages and not allowing insurance companies to charge more for riskier clients – caused the price of insurance to rise dramatically. In Arizona, for example, the price more than doubled between 2016 and 2017 alone.

For the complete script, visit https://www.prageru.com/videos/why-health-insurance-so-complicated

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Tags affordable care actCar Insurancedennis pragereconomicshealth insurancehealthcareHoover InstitutioninsuranceLanhee ChenLife InsuranceobamacareprageruStanford University
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42 Comments

  4. I have a question for those living in the US and know how the system works. First a real scenario:
    Someone living in the US who did not fall under the Obama healthcare plan – due to earning a high salary – had a piece of wood go into his foot. He went to the hospital to have it removed. It cost 100 dollars which he paid there and then. A month or so later a bill of 5000 dollars comes to his address for the same procedure he had already paid 100 dollars for at the hospital. Perplexed, I asked him how that could be! He said: That's how insurance companies operate in the US – they have complicated rules and hidden costs.
    Could someone with real knowledge explain how that could happen at all – if the story is true in the first place?

  5. People with insurance don't ask the price, because they don't see themselves as paying the cost. Get rid of insurance. People will shop around. Providers will have to lower costs, or they won't have any customers.

  10. The reason why the price of health insurance is so high, and it's a reason anybody who's lived in the US and gone to a hospital here would know about, is that the doctor bill for a routine checkup can cost up to five thousand dollars.

  12. Let's simplify it. It's capitalism 101. Health insurance companies are not designed to provide benefits they are designed to provide profit for the health insurance company. There is very little competition there aren't that many companies. If I buy a plan from an out-of-state company that provides a lower rate for the same coverage how do I know my doctor is going to accept it? Medicare for all is better for the consumer and for the doctor and the health insurance company. This would be good for the companies because now they could sell a product and not have to provide a benefit which is what they want to do to begin with.

  13. My wife has cancer. Coverage for that pre-existing condition is exceptionally expensive with out without the ACA. Between medical specialists, chemo, and everything in between, there is a lot of expense for any insurance provider to cover. With millions of Americans getting treatment for exceptionally expensive medical conditions, the only way to keep the cost down the John Q patient is to pool the financial resources of those that don't need special treatment. Which in turn makes everyone's insurance more expensive.

  15. The answer is easy. It's a combination of government interference and the people using the product don't know what they are paying for or have any power to make decisions that affect them directly.

  16. It’s because Heath care is 1/4 of the GNP and the government wants it’s hands in that if heath care was Competitively priced and companies and care providers could set the prices without big brother being there the market would find a set value for things and things would work out without all the regulations

  19. Why can't We the People decide that we want part of our tax burden to be used for single payer healthcare and less to say Military spending to cover it. If We the People want it, we should get it, no? It's our money! We are the ones that earned it. Proof that the members of the US government don't give a rats ass about the people. So we need to reciprocate. by starting to remove positions as senators and representatives from being able to be occupied. Because lets get real, the reason we have a congress s no longer valid. They are obsolete. Distance being an obstacle for communication is no longer a thing. We have the internet and can communicate freely in real time. Let's put up a social media type solution to actually work for us, and not be slaves to it. A secure site with enough under the hood to accommodate the user load of the nations adult population. Facebook has even more users. Setup so any citizen could easily see what people are currently debating, whats on the table, up for renewal, or expiring etc… Then they could join the discussions as easily as you could on say, Facebook. Have a rotating list of citizens to spend time as simple moderators that would be responsible for weeding out any obvious trolling banter , Removing posts/comments that are purely corporate shill/advertising. Operating overhead and moderator Per Diem/pay Would be funded through taxpayers just as congress is today, but would be so much cheaper. I would be willing to spend a couple hours a week taking part in my Republic. What say you all?

  21. It can always be worse: here in Spain we are forced to pay dearly for public healthcare and we don't get what we should for that money. In fact, most of us don't even use the service most of our lives. Yet it's a black hole of money with mountain of deficit accumulated over many years. A debacle.

  27. I think that making health care companies not insurance companies compete to get business (cliats) would also bring prices down. Kind like lasic for your eyes or plastic surgery. But once someone else pays your bill regardless how how much it cost, well then you don’t care how much it cost

  28. Unfortunately, the Democrats continue to sell the utopic lie that government has the answers to all of society's problems, and too many people believe this lie, or simply do not have a problem with leaching off of society's producers. What all too many people fail to realize is that elitist will not be subject to government healthcare. Danny D.

  30. Here's the thing. You can't compare car insurance with health insurance because legally, you are not allowed to drive without car insurance. Thus applies whether you are working minimum wage or if you are a multi billionaire. However, if you don't own a car or are not planning to drive anywhere, then you are NOT legally required to have car insurance. If you are going to use the car insurance analogy, it would be if you don't have health insurance, you do not have the right to live. But you can choose to commit suicide to avoid paying for health insurance

  36. I've watched 3 videos on this same subject and all 3 tell a very different story….WTF? The Medical Industry is extremely wealthy from years of overpriced drugs and services. They have a ton of political influence and they don't want to give it up. Private Sector insurance will rape us!

  37. Why is America so complicated on Health Care??

    European Health System Vs America

    AN EXPLAINATION

    WHATS IN IT FOR THE GOVERNMENT

    European system costs 11% of GDP against 19% in the USA

    EU HEALTH CARE IS ALL INCLUDED THE USA NOT

    USA life expectancy is 42th in the world on the world ratings.

    WHATS IN IT FOR THE EU PATIENT?

    If you pay taxes, as an individual, and contribute to the central government “POT” (the community POT of money).

    You are covered for all treatment, hospital costs, surgery, drugs, implants, chemo, post op therapies, cost of prescribed drugs, specialist and normal GP doctors bills, specialist bills etc etc.

    (There are some small exceptions.)

    Its all included, pocket your credit card.. you dont need it.

    The system is rated as better than the American system as nobody is excluded and the system covers 99% of all patient needs.

    THE EUROPEAN SYSTEM HOW IT WORKS:

    All european health systems are government run and are simple systems .

    It is a central, run by the govenment covering all healthcare needs for the population and is non profit , universal, and also internationally recognised between all EU countries.

    The EU underlying system is through fiscal residency of a person, (ie you pay into the employment tax system of the country you live and into health system, if you are registered or unemployed you are covered)

    Simply put, each person pays into the THE GOVENMENT POT as a % of individual pay packet contributions where you are employed.

    Importantly even if you are unemployed, but registered, you control illegal immigration. Illegals get no benefits, unless humanitarian emergency.

    Importantly you are still covered. you as a patient get equal rights and coverage across Europe.

    The EU system is state run, and covers everyone, from birth to death and costs half of the USA system.

    Therefore in the USA a % of the health cost is based on profit to be paid out in dividends.

    Additionallly not all people in the USA are covered, (approximately 15%)

    Its a Bum deal for Americans. It costs 8-9% of GDP more than Europe.

    HOW IT IS MANAGED:

    In America USA, the health system is profit run for the most part and privately handled. Patient care is secondary to profit for 50% of coverage.

    The European state (country) is the employer of all health staff, doctors, nurses, etc.

    Central government then covers the hospitals costs through a system which keeps the hospitals covered for the expenses of each patient.

    If we compare the EU to the USA structure in terms of cost to GDP, Europe average 11% of GDP to the USA 20% of GDP, (2019) with the EU at 99% coverage and with improved life expectancy rate, compared to the USA.

    Central Government in each country collects the money through the taxes you pay as a citizen, and redistributes it (generally) to regions ,hospitals, and doctors etc which then distributes the funds to the health system used by the patient.

    The Government also allows the private sector to operate under the public system, to build hospitals, run them privately.

    Each country allows this in different rules, like Germany/UK/France etc. They are then licence them to operate by the government.

    But importantly, the patient who pays to the state contributions through his salary, has equal rights to access all hospitals.

    10-15 % of the EU health system is private

    If you wish to pay an additional supplement to the state system, you are allowed to do this into to the private scheme on top of your mandatory state payments so you get private health care coverage.

    But you cannot opt out of the central system or add to it.

    Most of people dont have the means or desire to pay private insurance policies. So the state system is better for them.

    WHATS THE BENEFIT

    Basically the EU system covers 99% of people and costs the half of the USA system.

    In addition to this, with the EU system, if you pay contributions to the health system in the UK or France, you can have full medical care in other countries , Germany, Italy, Hungary or any other of the 27 states etc.

    If you lose your job, you will still be covered. you just pay less to the system as unemployment reimbusement to you is less, so you pay less, but the more you earn at work, the more you contribute to the central system. Its based on % of earnings.

    These European systems are based on the old and original UK system, The National Health Service, abbreviated to NHS, was launched by the then Minister of Health in Attlee's post-war government, Aneurin Bevan, at the Park Hospital in Manchester. Aneurin Bevan, Minister of Health, on the first day of the National Health Service, 5 July 1948 at Park Hospital, Davyhulme, near Manchester.

    THE REAL ISSUE

    1. EU Health is non political, non profit, more efficient and cheaper that the USA system,

    2. BETTER in many ways, as the patient is first, and health has no “profit COST”.

    3. It reduces the cost to the Government. (11% against the USA 20% per year GDP)

    4. Its not fragmented. Its coverage is national, and for all.

    5. If you are REGISTERED as a TAX payer, you have no problems.

    6. If you are clandestine, then you get some emergency humanitarian services only.

    Thus the authorities know who you are and send you home after.

    Thanks for the comments!!!!

  38. Healthcare shouldn't be compared to other forms of insurance because healthcare isn't optional. Buying a car, home, or getting a pet is your choice. What's not your choice is falling off of a ladder or getting cancer. If you got cancer Obamacare protects you from having to pay the full price. In a fully free market insurer would drop the people with cancer and such and those people would end up living on the street.