Every health insurance policy purchase represents a compromise between premiums and the amount of financial protection offered. Policies with higher out-of-pocket expenses via higher deductibles or co-pays generally have lower premiums. Pairing low premiums with coverage for even routine health expenses often requires limiting the total amount that the policy will pay to a relatively small amount, say $50,000, rather than the roughly $2 to $5 million that is the current commercial standard for individually purchased policies.

People’s insurance needs depend on their incomes, their assets, their health, and their tolerance for risk. These change throughout a person’s life. Some people need protection against small losses, others can afford larger ones. Some people have very small yearly health costs that they can pay out-of-pocket. They prefer low premiums for plans with large deductibles. Others want certainty. They prefer high premiums for plans that limit their out-of-pocket costs.

Existing evidence suggests that when politicians or their representatives design health insurance, they favor coverage of small expenses even though this increases claims processing overhead and overall costs. To keep premiums low, they often prefer to increase the amount people will have to pay in the event of a catastrophic loss. Continue reading Designing Health Insurance: Politicians vs. the Market →