The Insurance That Isn’t
Why Health Insurance Fails By Design
Insurance is a tool for managing risk. Its rationale is simple: if an unlikely but expensive event might happen to anyone in a group, they can all contribute a small premium to protect themselves from financial ruin if it happens to them. The premiums are priced according to the likelihood of the event and the average cost of covering it. Most will never make a claim, and that is the point. Insurance is peace of mind, not a prepaid benefit.
What we now call “health insurance” in the United States bears no resemblance to this model. It is no longer insurance. It is an incoherent system of prepayment, redistribution, and denial, required to function like a welfare program but expected to turn a profit. It is not limited to unexpected catastrophic illness or injury but instead is mandated to pay for routine office visits, lab work, birth control, psychotherapy, physicals, vaccinations, and even screening tests that everyone will receive. Worse still, new policies are compelled by law to cover treatment of illnesses that were diagnosed long before the policy was written, including cancer, diabetes, and heart disease. In short, what we euphemistically call “insurance” must cover certainties, not risks.
No real insurance company would ever willingly agree to such terms. It would be akin to demanding that your homeowner’s policy cover your electricity and water bills and your home internet, or insisting that they sell you a new policy to cover putting out a house that is already on fire. It would be like asking your auto insurer to pay for gasoline, oil changes, new tires, and repairs to a car that was already wrapped around a tree before the policy was ever written. These would be absurd expectations, but in health care, we have mandated them.
The result is a business model destined to fail. If everyone pays in and everyone expects to receive more in services than they paid in premiums, who is left to fund the system? How can an insurance company survive when it is prohibited from assessing risk and required to take on guaranteed losses? The entire premise collapses when the company is forced to pay for outcomes that have already occurred and expenses that are certain to recur. The insurer can only survive by doing one of two things: denying care or overcharging for it. In practice, they do both.
Patients experience this as a gauntlet of prior authorizations, coverage exclusions, surprise bills, and narrow networks. Physicians experience it as time wasted on documentation, coding games, and arguments with non-clinicians about what care will or will not be approved. No one is satisfied, everyone feels manipulated, and everyone is right.
This is not a free market. It is a fragmented form of socialized medicine where the rationing is performed not by government bureaucrats but by private corporations. The fundamental tension is this: the system was designed to behave like a redistributive public good while remaining nominally private. It is structured around the political imperative that no one be left out and no one be allowed to lose, while simultaneously expecting profit, innovation, and efficiency from the entities tasked with managing it.
In reality, no amount of regulation or subsidy can reconcile this contradiction. Insurers are not evil for trying to avoid losses; they are simply rational actors operating under irrational constraints. They cannot price premiums accurately because they are not allowed to adjust for individual risk. They cannot offer stripped-down catastrophic plans because regulations require comprehensive coverage. They cannot compete on transparent pricing because hospitals and providers are trapped in a separate ecosystem of opaque negotiated rates and facility fees.
The Affordable Care Act solidified this dysfunction by requiring insurers to accept all applicants (known as guaranteed issue), charge them roughly the same price regardless of medical history (community rating), and cover a long list of essential health benefits. This made it illegal to offer a real insurance product in any traditional sense. It also made it inevitable that premiums would rise, networks would shrink, and middle-class families would subsidize the cost of care for others while struggling to access care themselves.
The tragedy is that the term “insurance” has become a euphemism for something entirely different: a third-party payer system that absorbs all financial transactions in healthcare and inflates their cost through layers of intermediaries. It does not protect patients from financial catastrophe but rather often creates it.
It would be a mistake, however, to view insurers as blameless actors merely trapped by bad legislation. The insurance industry has lobbied aggressively to preserve and expand the current model, not because it serves patients or physicians, but because it secures their role as gatekeepers of care. Their real customers are neither the sick nor the doctors, but the government agencies and employers who delegate to them the politically fraught task of rationing healthcare without admitting it. Their profits are not derived from medical expertise or improved outcomes, but from mastering the art of delay, denial, and complexity.
The solution is not more mandates or more centralization. It is to return to the foundational logic of insurance. Let individuals purchase true catastrophic coverage with premiums adjusted to risk. Let the market offer a range of products, including high-deductible plans and cash-pay discounts. Let people buy what they need and use what they buy. Let charity serve its proper role in caring for the indigent, rather than pretending that cross-subsidization through distortion is either efficient or moral.
Until then, Americans will continue to pay too much, receive too little, and wonder why something called “insurance” feels like such a bad deal.