Before we share our perspective on the challenges with the health insurance system, let’s make sure you’re familiar with some of the most common insurance terminology.
To start, consider a house fire…
In most American towns and cities, the fire department is funded by the residents’ taxes, and while some may complain about having to pay taxes, no one complains about the fire engines that show up minutes after a fire breaks out. This collective sharing of risk spreads the financial burden and provides peace of mind to those in the town.
This is more-or-less how insurance is supposed to work for medical care, too. Whether you get your insurance through the government (Medicare, Medicaid, or ACA exchanges), or through your employer, you make regular payments (called premiums), which are supposed to cover the cost of our healthcare.
Where healthcare and firefighting deviate is that firefighters don’t ask for an extra fee before they turn on the hoses. Health insurance increasingly does ask for money from sick people on top of their regular premiums — in the form of a co-pay (a flat fee or percentage of the cost of your care) or a deductible (a specific amount you have to pay on top of premiums each year before your insurance kicks in).
Together these out-of-pocket costs (OOPs) are ostensibly to prevent over-utilization of healthcare resources. They give us all “skin in the game” (as if being ill or getting hurt isn’t enough). These out-of-pocket costs have risen considerably over the years and can be especially burdensome to those with chronic conditions or with insurance purposefully designed with high copays and/or deductibles. Insurance plans typically cap those costs, eventually, when you hit your out-of-pocket maximum. But some plans — especially high-deductible plans — can have very high maximums.