Health Insurance: How Does It Work?
Yonatan Zunger

One big issue that the article has not covered but which makes even ordinary non-catastrophic health insurance hard to manage is the unusual and very complex way in which insurable costs are incurred. In normal insurance, cost is either known or easily established. In healthcare we see a rather disfunctional cost finding process — basically the consumer is the buyer of services but doesn’t pay beyond deductible, the doctor picks/performs the services, actually makes money on what he/she chooses (talk of a conflict of interest) but also doesn’t pay for them and finally insurance company is supposed to pay for it all. Insurance company can try to control the costs through pre-defined procedures, pre-approved doctors and as mentioned in article pre-negotiated discounts but ultimately it doesn’t work well — it is very very difficult to monitor “buying” decisions made by the patients and the doctors, and they can play havoc with any cost assumptions insurance company makes.

There is a natural trend for healthcare providers and doctors to increase their own income/provide more services and all the restrictions can do is slow it down but ultimately costs tend to grow. This happens everywhere in the world — it is not unique to US. As a result in all systems there is a cat and mouse cost game, there are expert panels that decide if something is covered or not (based on perceived ‘value’ of procedures), what doctors are paid, setting pricing of medicines, patients are very often asked to pay a flat fee or % of each procedure or test to discourage use of resources. Finally, as is common outside of the US, the costs are controled through simply limiting the access to procedures by limiting supply by decree — for example by artificially setting a limit on number of specific procedure that insurance will pay for in a given year or fixing the amount of money available to pay for that procedure. (it is basically a form of rationing).

So basically any viable healthcare system requires very careful cost management structure in addition to all the insurance option — otherwise no matter what structure prevails it is likely to fail in the long term.