When you buy a car and need to get auto insurance, do you anticipate using your auto insurance for oil changes, new tires, or replacing the spark plugs? I imagine your answer will be no — and chances are you wouldn’t even consider this in the first place, as using your insurance this way would accrue claims against your policy, leading to more expensive premiums in future years. So why do we use our health insurance like a coupon or discount code instead of viewing it like auto insurance? Why is it surprising (or not so much any longer, as we’ve grown to expect it) that our health insurance premiums go up every year?
The Truth About Health Insurance
Healthcare is “consumed” like many other services/goods in our economy, except for the fact that you don’t know the price of what you are receiving, and you often don’t have a true choice on where you receive services. Your insurance company corrals you into a “Tier 1” or “Preferred Provider” network and incentivizes you to go to these providers by discounting health services at those places of care. In exchange, the negotiated reimbursement rates between the healthcare provider and insurer are set to guarantee profitability on both ends.
Why Health Insurance Premiums are on the Rise
Your choice as a consumer is what “funnel” you decide to enter in. For instance, do I go with a Priority Health plan and get directed towards that funnel, or do I go with Blue Cross and get directed to that funnel? Once in a network (fancy name for funnel), your choices on where to receive care are essentially made up for you, and the pricing that goes along with it is incorporated into your premiums.
So why do insurers keep increasing their premium costs and why do they try to sell you into their plans? There’s a simple equation that will help bring context to this:
(estimated) Healthcare Costs + Insurance Provider Fees = Monthly Premium Costs
What happens when hospitals increase their prices for services? Your premium will go up. What happens when the insurance provider pays out more for healthcare services to the hospital than anticipated? Their profit margin goes down, and your premium goes up. Another aspect of this that should be considered: someone else’s use of healthcare can increase your premiums! That’s right, your premiums go up even if you don’t use any healthcare because you are covering the costs for those that utilize it a lot. That’s why getting as many healthy people into a provider’s insurance pool is critical — it drives their profitability.
The Problem with Health Insurance Premiums
Let’s step back and think about all of this by considering why we buy insurance in the first place. Going back to the auto insurance example, one of the main reasons we buy auto insurance is because we fear what would happen if our car got totaled and we’re left in financial burden. Luckily, we would get paid the vehicle’s value to replace it if insured. Shouldn’t healthcare insurance be viewed the same way? Pay individually for the services you need (preventative screenings, bloodwork, etc.), but hold more of a catastrophic style of insurance in case something major occurs?
The problem with this is that your premiums would be much lower, and the profit margin on all the lucrative, healthy insurance holders would go down…if only there were something out there like this. I’m happy to say there is! The emergence of high-deductible, HSA plans is becoming more popular for these reasons. You pay a lower premium and have more money in your pocket to decide where and how you consume healthcare services. It’s a positive step in the right direction but still not where it needs to be. Insurance companies are being forced to offer these options more and more because basic premiums for fully insured plans are outpacing people’s or businesses’ ability to afford them.
This is a very complex issue to solve, but the simple truth to all of it is that nothing is ever free! If you aren’t paying for it now, you’ll be paying for it later, and if you don’t pay for it later, you are the product (value). Don’t underestimate how valuable your health data is – our team is here to help. Contact our team today to learn about affordable, on-demand healthcare services.