Why Health Insurance Has Gotten So Complicated

Michele Warg
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Health insurance has long been a complicated and convoluted subject in the United States. It is a near necessity for anyone with a medical condition or past the age of 35, but all the rules, loopholes, costs and mandates can be difficult to follow or understand. The Affordable Care Act changed how health insurance is handled in the country, but the subject didn't get any simpler or easier to understand.

Health insurance is complicated for many reasons. First, medical costs are not static in the United States. Hospitals set their own billing rates, so costs for the same procedure vary, depending on where you go to get it done. The price quoted to insurance companies is also different from what is billed to customers who don't have insurance. Hospitals intentionally quote an inflated price to the insurance broker, knowing that they won't get anywhere near that amount. The insurance broker then counters, and they barter until a price is agreed upon. This bartering system requires insurance companies to protect themselves against spending more money than they receive from customers. They can't accurately predict how much money they'll need to pay each year, so they set a budget and estimate a figure based on past experience.

The insurance policies are then written to protect the insurance companies from large, unpredictable expenditures. Their main goal is always to make a profit. They accomplish this by excluding as much as they can from their coverage options, while retaining enough coverage to get people to buy their policies. They also make the language describing their coverage confusing, so many people don't realize what is left out of the policy when they make their purchases. A majority of Americans don't understand the terms frequently used in health insurance agreements and explanations. The Affordable Care Act changed some of these practices by requiring insurance companies to offer basic levels of coverage, while not allowing them to exempt customers for pre-existing medical conditions. Knowing what questions to ask helps you sort through the details of individual policies before making a purchasing decision.

However, the health exchanges now used to buy health insurance are complicated as well, because the process is coordinated among multiple government agencies and multiple private corporations. Even the Internal Revenue Service is involved, since their financial records help determine what subsidies a customer is eligible for, or what penalty is enacted on those who don't have health insurance by the deadline each year. That's a lot of records, logistics and software that all need to interact for customers to sign up for and pay for their coverage successfully.

The subject of health insurance can be intimidating, but it is important to your financial future, so you need to know as much about it as you can. Ask questions whenever you have them, and get multiple opinions if the first answer you get is unacceptable or doesn't make sense. You can't make health insurance simpler, but more knowledge helps you avoid many of the financial pitfalls.


(Photo courtesy of (Ambro)/freedigitalphotos.net)


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