We Pay More For Health Insurance Than For Healthcare

Open enrollment season for healthcare is essentially on us. For some employers, it’s already underway. For exchange-based policies, it starts in just over two weeks on November 1st. The news appears to be better this year with exchange-based policies expected to essentially be flat in cost. While that’s a big step in the right direction, it still dramatically papers over the bigger affordability issues with healthcare. I’ve demonstrated that the current health insurance first model for healthcare drives up costs because it masks the real costs of care preventing us from being good consumers of healthcare. This also removes market forces creating greater competition and driving down prices. Recently, I used a study from JAMA to illustrate the amount of money we waste on healthcare due to inefficiencies in the system. It amounts to 25% or $2,684 annually. That’s a lot of money wasted per year. But that doesn’t tell the whole story either. 

While working on that story and pulling in additional research and applying it to the new information from JAMA, I uncovered how much money we’re spending on health insurance relative to actual healthcare. 68% of the money goes to health insurance while only 32% goes to healthcare. In other words, $7,276 are sent to insurance companies and just $3,424 for healthcare.

Yes, it’s true that the more important purpose of any insurance product is to guard against catastrophe circumstances. However, with averages like these, it’ll never come close to good value for most people over the long run. Especially since most healthcare needs occur late in life when Americans are already on Medicare. It’s clear we’d be far better off using health insurance for emergencies, like virtually all other forms of insurance. I have no doubt the average American would much rather have access to the near $7,300 they’re paying to simply maintain health insurance annually. 

Photo by: Getty Images Europe, Christopher Furlong

 

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