What if Health Insurance Worked Like Car Insurance?

With the release of Rep. Pramila Jayapal’s new Medicare-for-All bill, the Democrats reiterated their commitment to continue the health care fight Barack Obama started. The bill would make the insurance system entirely public, eliminating a private insurance system that has become too expensive for many Americans. But the Democrats, much like Obama, aren’t diagnosing the problem correctly. They wrongly assume that the lack of insurance is the issue, when, in fact, it’s the insurance model we use.

Health insurance is not the same as health care. Yet politicians can’t seem to help but use the terms interchangeably.

As of 2016, 27 million people lacked health insurance because they didn’t have an employer-sponsored insurance plan, didn’t meet the Medicaid eligibility criteria, and couldn’t afford private insurance. Of course, it’s better for the highest possible number of people to have access to health care when they need it rather than trying to tough out illness and letting it get out of hand. And according to Democrats, they could do just that if only everyone could have access to health insurance. But that’s not quite the case.

Health insurance is often conflated with health care. But health care is what you get when you interact with a provider: a diagnosis, a prescription, surgery, and so on. Meanwhile, health insurance is how you pay for it. Yet politicians can’t seem to help but use the terms interchangeably.

Illogical Conflation 

This logic doesn’t compute. Take car insurance, for example. A vehicle is not the same thing as car insurance. A car owner takes care of her car on her own, keeping it clean and fixing minor issues herself. If the car gets damaged in an accident, insurance saves the day; if not, it stays largely uninvolved.

Health insurance should work the same way that car insurance does, but right now it doesn’t. Routine procedures, drug prescriptions for chronic disease, and a variety of other predictable and non-urgent procedures are all handled through insurance companies. And patients don’t receive full reimbursement for the results of major catastrophes. For many procedures, there are co-pays, out-of-network fees, non-covered services, and deductibles.

If health insurance functioned like car insurance and the entire population was covered, perhaps everyone would be better off.

For the 27 million Americans without health insurance, research shows they don’t seek preventative care and services for major health conditions and chronic diseases as often as people with insurance. They’re more likely than insured individuals to accumulate medical debt, too. These realities are certainly concerning. But the uninsured aren’t the only ones struggling with medical debt. In fact, it’s the number one cause of personal bankruptcy in the country. In 2014, 40 percent of the population had medical debt.

It’s understandably frustrating that millions of Americans have to incur debt to receive the care they desperately need. It’s why an increasing number of people believe health care is a right and support universal coverage as the solution to this crisis. If health insurance functioned like car insurance and the entire population were covered, perhaps everyone would be better off.

Unachievable with Government Intervention

Yet there are two key differences. First, car insurance isn’t a state-run program, and there’s plenty of competition. There are dozens of companies competing to offer car owners the insurance plan that meets their needs at a price they’re willing to pay. Those incentives force car insurance companies to exclude reimbursement for minor damages because they can’t stay in business very long if so many expenses are owed to their customers.

Health insurance is provided by a mixture of public and private payers, and it funds a significant share of the vast majority of procedures.

The second difference is that repair shops, tire manufacturers, and other providers of routine car fixes all compete on price to get the largest possible share of the millions of car owners in the market for their products and services. Neither of these features characterizes the health care market as we currently know it. Health insurance is provided by a mixture of public and private payers, and it funds a significant share of the vast majority of procedures. Providers don’t compete on price even for services that millions need on a regular basis.

When it comes to health insurance, people expect their coverage to give them more than they pay in, as if health care were a high-return investment opportunity. If one person’s treatment costs $120,000 a year and they pay a monthly premium of $1,000, the company needs nine people to pay $1,000 a month and not consume any health care services just to break even. But they might need even more, as a company probably requires a few more perfectly healthy insurees to cover its administrative and marketing costs.

Let insurance be what it was meant to be: peace of mind against catastrophe.

The primary role of insurance isn’t to pay bills; it’s to give customers peace of mind—a guarantee that a catastrophic health event will not bankrupt them. And when they’re in need of more minor health care services, consumers should be looking for the best-value care in the market because those costs would be coming out of their pockets. Yet the high levels of medical debt show that our current insurance system has strayed far from this model as the prices for minor procedures and treatments have gone through the roof.

Increased coverage sounds nice. But even after getting the number of uninsured people to zero, we’d still struggle with unaffordable copays and deductibles and staggering levels of medical debt. The first step toward obtaining an affordable health insurance system that works in favor of all of us is to let insurance be what it was meant to be: peace of mind against catastrophe.