Insurance pools the costs of unpredictable events (illness, car accidents, etc.) so that the members of the pool share the costs of the events that fall on individual members of the group. Insurance that covers the costs of medical expenses incurred by a few members of the group (the insurance pool) is share among the group. Thus, most members of the group pay a “modest” amount for medical costs they do not incur in order to help pay the costs of care actually incurred by a few.
Your medical costs depend on many things. If you are paying for it, what you receive (and its cost) is agreed between you and your care giver (doctor). If someone else is paying for it, such as your insurance company, they will determine what is provided and its cost. An insurer can specify the doctors you must use with whom they will have agreements on cost and extent of treatment. Or you might choose your own doctor outside the insurers network, but the insurer will set the cost they will pay and potentially the extent of treatment they will pay for.
The fact that medical care is insured does not mean that the cost of providing it does not exist. The details of what the insurance covers can significantly influence the care given and its cost. As insurance is the sharing of the actual or covered costs with a group, the determination of who is in the group (pool) that will share whatever insured costs are incurred is critical.
When health insurance is provided by companies to their employees, the pool consists of those employees. This has some advantages and disadvantages. It avoids packing the pool with sick people (e.g. those with preexisting health conditions) and thus increasing the cost to be shared (covered by the insurance). But it will generally result in the loss of insurance coverage if you want to change jobs. Forming insurance pools other than via an employer is an interesting challenge. An insurance pool of bird watchers might expect different premiums than a pool of mountain climbers.
Insurance providers attempt to keep the overall cost to be shared, and hence the cost of the insurance premiums, as low as possible by requiring the members of the pool to pay some amount (copay) of the medical bill thus providing them with some incentive to only get care that they really need. Price transparency is also important in this regard. A medical doctor friend complained to me that he doesn’t even know what his patients are being changed for his services. The approach that maximizes your incentive to economize on your medical expenses is to limit insurance to major medical expenses. Once again, the insurance company rather than the patient will negotiate the charges involved (hospital stay, medications, procedures, etc.).
Clearly what medical services are provided, and how that service is organized and its cost, will be significantly influenced by who pays for them. The policy challenge is to enable everyone to receive the essential medical care they need, while keeping its cost as low as possible overall and to each of us individually.
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