Driving lower healthcare insurance costs
Feb 08, 2025
***This article is part of the series 5 Steps to Fix Health Insurance in America.
Step 1: Require insurance companies to separate the different elements of insurance policies.
Health insurance is complicated, expensive, and opaque. Very few patients understand how premiums are set, the terminology used for determining the patient portion of healthcare services (ie. copay, coinsurance, deductible, etc.), and even which services are covered (and at what level of copay). Heck, as a physician pretty well versed in business and finance, it's difficult for me to navigate the nonsense.
Car insurance is a bit less complex though. Well, at least it's a bit more transparent. That's because the rates for each portion of car insurance premiums are itemized on the bill. We can see how much we pay for uninsured motorist coverage, or our car rental rider, or our collision insurance, etc.
I know, I know, the human body isn't an inanimate object. True, but we can learn from other forms of insurance to guide making health insurance much better for all of us. Thus, this article will draw parallels between car insurance and health insurance to guide how we can fix health insurance by taking the critical first step of requiring health insurance companies to itemize the premium costs for each element of the policy.
6 Elements of the Insurance Policy
Whether we're talking about the human body or a car there are different costs for which we can potentially by insurance to prevent a large and unexpected expense (after all, that's the purpose of insurance). Let's put these costs into 6 categories: Cosmetic, Prevention, Maintenance, Collision, Comprehensive, Miscellaneous.
Cosmetic
Cosmetic appeal usually isn't covered by insurance. It's optional. It's viewed as rooted in vanity. That doesn't mean these enhancements should be unlawful or unethical -- they're just a matter of personal choice.
Car
Custom paint, leather interiors, upgraded rims, chrome or blackout accents, colored or additional lights, and upgraded tires are all example of optional upgrades for cars. We don't need these things to get from Point A to Point B, but they may make us more comfortable or make us feel better about ourselves along the ride.
Human
Liposuction, fat redistribution surgery, breast augmentation, botox, fillers, laser hair removal, hair restoration, and weight loss are healthcare services that are often nonessential. These services often make us feel better in our relationship with ourselves and others but we need some downstream effects to get to tangible health benefits.
Prevention
Most things in life require an initial investment to produce a desired long term result. Often, the initial investment requires sacrifice. In business, this is a calculated opportunity cost. For cars, this means spending money on certain services to reduce downstream maintenance costs. For humans, this means investing in care that is shown to reduce the risk of downstream medical problems.
Car
Oil change, tire rotation, filter changes, 37 point checkup (or however many 'points' your service station checks), and ensuring appropriate tire pressure are examples of products and services that, when performed at recommended intervals by qualified individuals, will reduce downstream maintenance costs, help prevent catastrophic damages, and improve longevity of the car.
Human
Certain vaccinations, cancer screenings, certain medications, and annual checkups are examples of health care services that have been shown to, when performed/taken at recommended intervals and by qualified individuals, reduce downstream healthcare costs, prevent catastrophic illness, and improve longevity.
It's critical to note that prevention is complex -- for cars and humans. Some preventive measures, like those outlined above, require us to seek out skilled help. But other preventive measures are driven by our individual behavior, social constructs, and environmental factors. Just as living in a high-salt environment like a beach town might make it beneficial to include washing the undercarriage of your car to prevent rust/corrosion but not critical for a car in Central Texas, the cancer screening schedule may be different for someone who is black vs white, male vs female. Likewise, our individual habits and decisions play a role in prevention: speeding and slamming on the brakes quickly/frequently increases risk of catastrophic damage to the care, makes fuel cost more expensive, and increases the frequency of changing tires and brake pads, while tobacco, alcohol, and illicit drug use increase the risk of infections, cancers, and mental illness.
While complex, it's undeniable that an ounce of prevention can be worth a pound of cure... and we need to know how much we are paying for this portion of our policy.
Maintenance
Many expenses in life are predictable. We buy food to eat to provide energy and nutrients for our bodily functions (at least that's what food should be for); likewise, our cars need fuel to function. We also have predictable expenses to maintain the usual function of parts of our life. The gutters of our homes need cleaned periodically. We need to wash our clothes periodically. We mow our grass and trim our hedges. We replace the shingles on our roofs. We attend educational conferences to brush up on the latest knowledge and skills. We replace a part of a worn out leaky faucet. Maintenance is everywhere. Cars and humans are no exception.
Car
New tires, new brakes, tune up, replacing a worn out fan motor, or windshield wiper blade replacement are all examples of maintenance items for a car. New tires, brake pads, and windshield wiper blades are pretty regular and predictable -- these are car parts that we know will wear out with a high degree of predictability. While less frequent, a tune up is predictable as well, and serves an important purpose in keeping a car functioning and reducing the potential for catastrophic damage. But some things just wear out, or require maintenance in a less predictable manner. A flat tire from a nail on the road. A fan motor for your heater wears out. These are things that are essential to function, but less predictable -- sometimes at no fault of the driver/owner.
Human
Chronic conditions and joint replacements are the two primary forms of health care maintenance in this context. Parts of our body wear out just as parts of our cars wear out. Sometimes it's no fault of our own. Sometimes it's partially our own fault. And sometimes it's entirely our own fault. Some things wear out in a pretty predictable and stepwise manner (as in progressive chronic diseases) and sometimes in a highly unpredictable manner. Either way, we know there are many expenses associated with caring for humans that are predictable and routine.
Collision Insurance
Now let's talk about some big stuff. We're obsessed with big dramatic numbers in America, so let's talk about collision insurance. We do things in life that put ourselves and objects associated with us at risk for damage. How and where we choose to drive contributes to the risk of car damage. How we act and with whom contributes to our risk of emotional damage. What we eat (and how much), where we live, what we drink (and how much), whether we use tobacco, alcohol, illicit drugs, and other factors all contribute to our risk of damage to us as humans. Insurance helps to offset expenses that arise from such damages.
Car
At fault accidents are covered by collision insurance and several factors determine the cost of the premium. What is the deductible? What is the individual driving record (risk factor)? What is the claim history (objective outcome history)? What type of car? Replacement value or new car? Who gets to select the repair location? These are all factors that determine the premium, but one thing remains the same: the insurance policy exists to offset the cost of a catastrophic, rare, and unpredictable event. The type of policy determines whether the repair is 'good enough' or 'good as new' or 'the new standard', as well as the split between insurance and customer cost.
Human
The human equivalent to this is the risk-adjusted portion of both acute and chronic conditions. The risk of a broken arm is higher for someone who plays college football than someone who all-else being equal does not. The risk of lung cancer is higher for someone who smokes tobacco than someone who does not. The risk of colon cancer is higher for someone who is obese than someone who is not. These are largely personal choices that increase the risk of substantial downstream health care costs.
The key to this portion is the underlying theme that most of the cost is driven by personal choices. What kind of car do I choose to drive? Do I reduce my risk by following safety rules like speed limits? Along with do I use tobacco, alcohol, illicit drugs, or overeat? Do I follow preventive and health maintenance recommendations? Our personal choices can't be ignored any longer when increasing the transparency in our health insurance costs.
Comprehensive Insurance
Some things in life are just a stroke of bad luck -- or at least of little fault of our own. I believe we should not be individually punished for this. Conversely, risks associated with living in certain geographic locations should be spread among those who choose to assume the risks of living there. These concepts apply to both cars and humans in principle, and we should apply them to car and health insurance policies just the same.
Car
Everyone I know has had a windshield cracked or chipped by a stray rock while driving down the road. Sure space behind a car in front, type of road, likelihood of dump trucks on the road, how many miles driven per year and such all play a role, but a rock to the windshield is mostly a happenstance event that can happen to any of us. Likewise, while we can mitigate risk by parking in a garage, risk of tornado damage is the same for everyone living in a given location. On the other hand, risk of hurricane damage is far different for those who live in Miami, FL than Provo, UT. Comprehensive insurance premiums are far less dependent on the individual, and far more dependent on regional environmental and regulatory factors. Choosing to live and drive in those regions is a choice to assume that risk, but the cost is spread rather equally among everyone choosing to do so.
Human
I don't know anyone who doesn't think a child born with cerebral palsy, or a 30 year old woman stricken with breast cancer shouldn't have health care covered by insurance. The vast majority of people, I think, agree that these costs should be spread among society as part of our social duty in an organized society. This comprehensive portion of health insurance is to pay for the curve balls in life -- the catastrophic events that are far less predictable, and that are far less driven by personal choices. Yet, some risk is geographic or environmental, and we need to add transparency to that so we can target improvement in those areas. This is where investment in anti-pollution infrastructure, reducing harms from firearms, and other population health programs and regulations can provide regional insights at the population level.
Miscellaneous
Do you have the Cadillac policy or the Pento policy? There are all kinds of bells and whistles on insurance policies these days known as that can quickly drive up premiums. Sometimes these provide important piece of mind. Sometimes they provide much needed financial protection. And sometimes, they are simply redundant and unnecessary ways to drive up profitability for the insurance companies.
Car
There are lots of moving parts in car insurance policies not already discussed: uninsured motorist, bodily injury, physical liability, car rental, roadside assistance, etc. are all additional elements that add to the cost of the policy. Some of these are required by law. Some are completely optional. In either case, there are usually an array of options to choose from that alter the price of the policy.
Human
For health insurance, I view things like medications that help with symptoms control as opposed to curing an illness, surgical techniques and devices that minimize scarring but don't otherwise improve outcomes, brand name vs generic medications, or even the specific dollar amount to pay for an office visit as elements that fall in this category. The idea that we shouldn't allow individuals to choose more comprehensive or 'Cadillac' policies is absurd, but we need to clearly delineate the miscellaneous portions whether they are required by law or optional bells and whistles.
Public Transportation
Equity is a noble goal. So is equality. They are also unattainable. We prey on the idealistic emotional chords of health care when we preach these concepts. Reality suggests there is not a single area in life, anywhere in the world, in which equity and equality wholly exist. Let's stop kidding ourselves. We must acknowledge that the haves and the have nots exist, and will always exist to some extent. The sooner we acknowledge this, the sooner we can move on to actually reducing the cost of care and improving access, quality, and workforce satisfaction by doing so.
Car
Transportation is essential to life in most parts of the world today. Yet, I don't see anyone preaching from the mountaintop that buy and maintaining a car for everyone is a birthright. Heck, we don't even let people drive them until over a decade of suffering without. If you can't afford a car, or choose not to own one, the public doesn't buy you a Ferrari, or even a Chevy. Some areas of society have decided to pool collective resources to provide public transportation systems. But those come with less freedom or luxuries than come with owning a car. Public transportation systems have strict routes, schedules, and stops that are far less convenient. We may have to sit in a crowded space by someone who makes us uncomfortable. And, we usually still have to pay at least some fee to use it.
Human
Public insurance, or publicly subsidized insurance, likewise should not pay for the bells and whistles. If our organized society decides to have portions of health insurance and/or health care paid for, that's a great thing... it's just not practical (or affordable) for everyone to have the bells and whistles in either an equal or equitable plan. I'm a fan of investing in public transportation options, and I'm also a fan of investing in public health options. We just need to use an evidence-based and practical approach that resists the temptation to succumb to emotional decisions.
Summary
Health care in America is far more expensive than it needs to be to achieve the same results. As Deming said "Every system is perfectly designed to get the results it gets". If we are going to address our health care issues head on, we must take a head on approach to reimagining health insurance. A critical first step in doing so is to improve transparency of premium costs (which are a proxy of health care costs) by breaking out groups of expenses. Car insurance, warranties, and maintenance plans provide us a great blueprint to work from -- it's not perfect, but it's a great start.
We can't stop here though, we must act on Step 2 as well.