The Health Insurance Paradox
Health insurance is meant to protect us from large, unpredictable medical bills and provide us with affordable care. But why does it often feels like the exact opposite? And what can we do about it?
“I can’t afford to get sick,” Amelia1 said, her voice heavy with frustration.
Until I met Amelia, I never knew insurance could be so complicated and frustrating for some. I had bought my health insurance online in just a few clicks. Amelia is younger than me, just turned 30, and looked as fit and healthy as I was. Yet she was denied health insurance by every provider in Singapore. Wait, why?
“My mother has a hereditary condition. There’s a 50% chance of me having it.” Amelia calmly explained to me that the condition is related to hypertension, an issue that makes insurance underwriters nervous. High blood pressure is a lifelong condition, which means the insurance company might have to pay for 50 or more years of medication, doctor visits, and diagnostic tests for Amelia. It often also leads to other costly health issues, such as heart attacks, stroke, and chronic kidney failure. In other words, Amelia could be an exorbitant liability for an insurance company, even though she was still healthy and had a 50% chance of not having her mother’s condition. Because of this, the insurance companies she approached didn’t dare to offer any health insurance policy with exclusions or premium loading. Just outright rejections.
During our conversation, she admitted that she avoided getting tested before applying for insurance because she was afraid a positive result would nuke any little chances she had. After all the rejections, she finally got tested. It turned out she had inherited her mother’s condition. She had delayed essential treatment for fear of losing the chance at financial protection. That sat uncomfortably with me.
Her story stayed with me, not just as a personal struggle, but as a reflection of how helpless many of us feel in the face of the huge insurance corporations and medical organizations for something as important as our health—and our life. And she was just trying to get insurance. The troubles don’t end even after we get our insurance.
Insurance nightmares
A survey by leading healthcare research group KFF showed that about six in ten insured American adults had issues using their insurance. For some, insurance companies denied the care they needed or covered less than expected. For others, the insurance companies did not cover the doctors or hospitals they needed. Or if the doctors or hospitals were covered, there were no available appointments. Worse still, one in four American adults delayed or skipped necessary medical care due to cost. What’s the use of insurance, of paying thousands of dollars in premiums every year, if we aren’t exactly protected financially or cared for medically?
Part of the problem is that most of us don’t understand health insurance. And insurance companies don’t make it any easier either. We are drowned under jargon like deductible, copayment, and coinsurance. Instead of seeking the best care, we have to contend with whether the doctors are in-network or out-of-network. About a third of insured American adults don’t know what their insurance will cover, what they will need to pay out of their pocket, or what their benefits document means. “There are times that I feel overwhelmed because of the situation. And I feel embarrassed that I have to ask people for help,” shared Jim, a participant in PhRMA’s Patient Experience Survey, when asked about his experience navigating health insurance.
After the unfortunate assassination of Brian Thompson, the CEO of US health insurance company UnitedHealthcare, tens of thousands shared their support on social media for the murder. Years of frustration and anger at the insurance industry poured forth. A tech reporter went as far as saying she felt ”joy” about the demise of the insurance executive.
Health insurance is meant to help us, to protect us from financial bankruptcy and provide us with affordable care. But why is it more commonly associated with maddening restrictions, confusing rules, and ever-increasing premiums?
(While I mostly quote statistics and stories from the US, where health insurance issues are most prevalent, many painful problems are global. Even in the UK and Canada, where healthcare is publicly funded, millions opt for private health insurance to get faster care and more coverage.)
The healthcare buffet
People with health insurance behave a little like those at an eat-all-you-can buffet. If you are starving and looking to feast, a fixed-price, unlimited-food buffet will look more attractive than five à la carte items. Once you have paid for your buffet, you often eat as much as you can. Restaurants have to impose restrictions, such as a maximum dining time of 90 minutes, or they risk making a loss and facing bankruptcy.
Although they are worlds apart, the same incentive-driven behaviors happen in healthcare. If you are frail and know you will use a lot of medical services, you will load up on your insurance, instead of paying for doctor’s visits yourself. And once you have paid for your insurance, it makes sense to use as much healthcare as you can. When presented with two drugs that are similar in effect but different in price, we prefer the more expensive one because we are geared to think expensive is better. Doctors are also incentivized to choose more expensive options because they are the ones getting paid by insurance after all. This goes further. When we are covered by insurance, we are more likely to seek or receive unnecessary diagnostic tests and treatments.
Like buffet restaurants, insurance companies find ways to mitigate this “buffet syndrome”, to deal with people who want to game the system. Insurance companies can easily identify people like Amelia, those with pre-existing conditions and potential hereditary diseases. However, among those without these issues, insurance companies cannot distinguish between those who will use insurance excessively and those who won’t. So they use free gym memberships to attract healthy folks and deter the rest who hate the gym. They impose a 10-month waiting period for pregnancy-related conditions to prevent women from getting insurance only after they know they are pregnant2. They offer cheaper high-deductible plans to lure individuals who expect to use little healthcare and expensive low-deductible plans to disincentivize those who anticipate higher medical needs.
Because Amelia is not covered by insurance, she is selective about the drugs and treatments she gets. Every cent comes out of her pocket. On the other hand, those who know our insurance will cover the cost are less likely to be thrifty. To reduce this moral hazard, our tendency to spend more because someone else is footing the bill, insurance companies have cost-sharing components such as deductibles and co-insurance. Suppose you have a plan with $1,000 deductible. If your medical bill is $5,000, you'll first fork out $1,000 from your own pocket. Then, coinsurance applies to the remaining $4,000. For a 20% coinsurance, you would pay 20% of $4,000 ($800), and the insurance company would cover the remaining 80% ($3,200). So your medical bill isn’t entirely free. You would still have to pay $1,800 of the $5,000 bill.
While insurance companies paying most of our bills seems great, excessive medical use will come back to bite us as rising healthcare costs will inevitably increase premiums. In the US, health insurance premiums increased 24% over the past five years. In fact, premiums have been rising faster than wages. Even in Singapore, where healthcare costs are significantly lower, premiums for national health insurance are set to increase by an average of 22% in the next three years— mostly driven by rising medical bills and higher claim payouts. As a 32-year-old Singaporean, my national health insurance premium will increase from SGD $397 (USD $291) today to SGD $503 (USD $369) in 2027. A 27% increase.
The empowered healthcare consumer
While it might seem like there is nothing we can do besides paying ever-increasing insurance premiums and medical bills, we can take action as consumers to make the most of our health insurance and manage our healthcare costs. And given the pervasive influence of insurance in healthcare, perhaps we are the only opposing economic force that can nudge healthcare to change.
1. Learn about insurance
The first is to educate ourselves about health insurance and pick the appropriate plan that matches our needs. Singapore’s Ministry of Health discovered that half of patients with private hospital insurance and riders still used subsidized public healthcare. They could have saved quite a sum by picking a lower coverage plan, skipping the rider, and paying much lower premiums3. The difference in lifetime premium of private hospital insurance and public hospital insurance in Singapore, excluding riders, can be as much as USD $200,000.
I have my own embarrassing experience where I made the opposite mistake. Last year, when my wife and I were expecting our firstborn, we picked the most affordable private hospital for the delivery. Unfortunately, my wife’s placenta detached from the uterus, putting both her and our son in a life-threatening condition. She was rushed into the operating theatre for an emergency C-section. Our hospitalization bill ballooned almost three times, from about USD $10,000 to USD $27,000. The gynecologist told us not to worry because placenta abruption is one of the few pregnancy conditions covered by health insurance. My mistake? Our health insurance covered only public hospitals, not private ones. The final bill burned a hole in our savings account.
To make health insurance more understandable, my cofounder Swee Kiat and I built an AI-powered chat app for health insurance. For the first prototype, we focused on Singapore’s health insurance, particularly the national health insurance MediShield Life and the additional private insurance Integrated Shield Plans (ISPs). The app is like a supercharged insurance agent—helpful, knowledgeable, but not selling you anything. As AI continues to improve, we believe it will empower more consumers to better select healthcare services and insurance themselves.
2. Don’t pay everything with insurance
The second is to consider not paying with our insurance. This might sound odd. Why not use my insurance if I have already paid the premiums? Let me explain. Your medical bills might have been much more expensive not because you got better healthcare but simply because you paid with your insurance. An insured patient was charged USD $2,756.47 out of pocket for her MRI when someone paying with cash would pay only USD $938. Another patient had a copay of USD $285 for a 90-day supply of medication, when the price without insurance was USD $40. There are countless stories like these. Drugs, scans, and treatments are often found to be exorbitantly pricier when paid with insurance.
Why does this happen? Hospitals, especially those with monopolistic market power or high-demand specialized services, negotiate for higher rates since insurance companies can pay better than patients. And counterintuitively, insurance companies don’t always negotiate prices down because higher medical costs allow them to charge higher premiums and earn more profit4. The additional administrative work to file claims, seek prior authorizations, and appeal denials further escalates costs. There is even an unnecessary layer of middlemen trying to help healthcare providers maximize their insurance reimbursements, which yet again bumps up the cost of services for the insured.
While negotiating for or finding cash options requires more effort than simply paying with insurance, numerous startups are making things easier. Perturbed by how insurance has inflated healthcare costs for both insured and uninsured, entrepreneur David Goldhill started Sesame, a health services marketplace where we pay upfront without insurance—and much lower prices—for care. An MRI in New York City costs USD $1,193 on average but only USD $311 to $562 on Sesame. And to reduce the frustration around hidden fees and surprise charges, Sesame shows us exactly how much an appointment will cost before we schedule it. More importantly, those who cannot afford insurance or have inadequate coverage, like Amelia, can finally get cheaper healthcare because their doctors don’t have to deal with the hassle of insurance.
Platforms like GoodRx also help us find the best prescription prices, including out-of-pocket prices, which could be much lower than the respective copay (via insurance). The average insurance price for cholesterol-lowering drug Atorvastatin is USD $12.34, versus $4.00 on GoodRx. Founder Doug Hirsch launched GoodRx after his personal experience—or scare—with the high cost of drugs. Despite having private insurance, he was told he owed USD $450 for his prescription. When he searched other pharmacies and discovered that the prices varied widely, he built GoodRx to help others save on prescription drugs.
All that said, you should assess your own situation yourself (and with your insurance agent). If you expect lots of medical expenses in the year and have already paid most of your deductible, it might still be more cost-effective to use your insurance.
3. Use healthcare responsibly
The third is to take a stepwise evidence-based wait, treat empirically, and see approach when you are ill, instead of opting for costly investigations and treatments upfront just because your insurance will pay for them. Irrational and overuse of healthcare will cause premiums to rise because insurance companies need to cover the cost. Even if we cannot stop healthcare costs from rising, we can slow the growth down with responsible use.
But how can we trust our doctors if, despite their best intentions, they are paid and incentivized by the insurance system? How can laypeople like you and me even challenge a doctor’s plan? Yes, we may never be as knowledgeable as medical professionals who spent years in training. But we don’t have to do this ourselves. Benjamin Lauzier’s wife suffered from a chronic health condition for three years, and they struggled to find the right care. After realizing that many people were navigating life-threatening and debilitating conditions largely with Google, like they were, he launched Nurra, a health tech company that connects patients with care advocates who help research solutions, explain diagnoses, and prepare for appointments.
Similarly, health insurance company Oscar provides each member with a dedicated Care Team, who explains their insurance plan to them, helps find in-network doctors, and runs cost estimates before they get care. Price comparison site Turquoise Health lists the prices for procedures, with or without insurance, so that we can shop for healthcare just like we shop on Amazon. Increasingly, we don’t have to fight for our health alone.
4. Appeal when denied
Finally, if your claims are unfortunately rejected by your insurance company, appeal. A little-known fact is that most insurance denials can be overturned if we appeal. But we don’t. Less than 0.2% of Affordable Care Act patients appealed their rejections because they don’t know how to or are too sick.
Holden Karau knows this dirty secret of the insurance industry because she has won more than 90% of her 40 appeals. After helping her friends with their appeals too, she launched Fight Health Insurance, an open-source platform that generates appeals with AI. Startups like Claimable are also helping patients appeal with AI-generated letters and have won 80% of their appeals.
The more we can learn about the healthcare industry and advocate for ourselves, the more we can take charge and push the healthcare and insurance industry forward. Companies like GoodRx, Nurra, and Claimable are empowering us with more information and support so that we can make better decisions.
Rewriting the rulebook
Thankfully, the insurance system itself is also evolving.
With the advent of wearables, insurance companies can now leverage more data to better underwrite risk and offer plans to those previously considered “uninsurable”. For instance, type 1 diabetics can almost never get insurance because they have to rely on pricey insulin therapy and are more likely to get a whole host of other complications. But, even though type 1 diabetes cannot be cured, it can be managed.
By leveraging its algorithmic pricing platform, South African insurtech company AllLife has been able to deliver a cost-effective life insurance offering for diabetics. When policyholders test their blood glucose, exercise, and take their medication regularly, they can reduce their premiums by up to 40%. While this is for life insurance, future advances will probably bring better products to the health insurance space and help more people, people like Amelia.
After she gave up on health insurance, Amelia tried looking for critical illness insurance. Most insurance agents ignored her; one gave this proposal: Three times the premium, and only death coverage. So much for critical illness insurance. Eventually, she did manage to get a little coverage. Even after describing all her struggles with insurance and healthcare, she remained upbeat. She now eats more healthily, exercises regularly, and visits her doctor diligently. She researches and tracks innovative healthcare and insurance companies that may one day solve her challenges while she saves up for her future healthcare needs.
If all of us can be more like her—stay healthy, use healthcare responsibly, and be educated on insurance—we will have a shot at chipping away at the issues with insurance and making healthcare better for all.
Not her real name.
To be fair, if you are getting insurance for an anticipated procedure to lower your bills, it isn’t insurance; it’s prepayment.
It is generally easier to downgrade a plan than upgrade a plan because upgrading will require an assessment of your health, which could lead to exclusions or even rejections if you have developed new medical conditions. The general advice is to choose a higher level of coverage while you are healthy and downgrade if necessary.
The Affordable Care Act in the US requires insurance companies to spend at least 80% of collected premiums on healthcare costs, or they have to give customers a rebate. If the cost of care falls, insurers are forced to charge lower premiums and make less profit (profit is at most 20% of the premium). Hence, higher medical costs allow insurers to charge higher premiums and earn more profit.