Six Things People Believe About Health Insurance That Are Simply Not So

In 1752 a group of Philadelphians, with Benjamin Franklin among them, set up a company to insure houses against fire. Nobody who bought a policy expected it to pay for a new doormat. Nobody expected it to cover the annual chimney sweeping, the paint touch-up or the lightbulbs. It was there for the day the house burned down, and that was the whole idea.

Now try to explain that to someone filling out an enrollment form today. We have taken something built to protect a family against a ruinous, unpredictable loss and turned it into a prepaid plan for ordinary expenses, administered by a corporation, taxed by a formula and argued about by politicians who have never once read the fine print. No wonder so many of us believe things about it that are not so.

Let me test six of them, folks, one at a time, with a verdict on each. No medical claims, no advice about your own coverage, just the logic and the record.

Myth one: "Insurance and care are the same thing"

This is the mother of all the others, so we start here.

Insurance is a financial product. It is a contract in which you pay a sum, called a premium, and the insurer promises to pay certain bills when certain things happen. Care is something else entirely: it is what a doctor, a nurse or a hospital does for you. They are related the way a flood policy is related to a dry basement. Having the first does not guarantee the second.

You can hold an insurance card and still wait months for a specialist, drive a long way to a hospital or find that the doctor you want is out of your plan's network. You can lack insurance and still receive care, because many providers will treat a patient who pays cash. The two can come apart in either direction.

Why does it matter? Because the whole debate in Washington is conducted as if coverage were the goal, and the number of people with a card were the score. A card is a promise to pay. Whether the promise turns into care, at a reasonable price and in a reasonable time, is a separate question, and it is the one patients care about. In a 2005 Supreme Court of Canada case about Quebec's system, Chief Justice McLachlin and Justice Major wrote, in their reasons, that access to a waiting list is not access to health care. You do not need to agree with the whole decision to see the point.

Verdict: false. Insurance pays bills. It is not care, and a policy that is easy to get but hard to use is a promise, not a service.

Myth two: "My employer pays my premium"

Look at your pay stub, if you have one that shows it, and you may see a line for the employer's share of your health plan. It feels like a gift from the company, a piece of generosity that comes on top of your wages.

It isn't. A business hires you for a total amount of compensation: wages, benefits, payroll taxes, the lot. The firm cares about the total. When the cost of the benefit goes up, the money has to come from somewhere, and that somewhere is usually the wage that otherwise would have been higher. Economists who study this have found over and over that the employer's share of a premium is, in the long run, borne largely by the worker through lower cash pay than he otherwise would have received. The employer is passing your money through a pipe with its name on it.

How did the pipe get built? How World War II Wage Controls Tied Your Health Insurance to Your Job tells the story: when wartime rules froze wages, employers competed for workers by offering benefits, and the practice stuck. Then the tax code made it permanent by letting employer-paid premiums escape income tax, which The Biggest Tax Break in America Hides in Your Paycheck Stub covers in detail. The result is that the system quietly rewards you for letting your boss choose your insurance, and then lets you believe he is paying for it.

Verdict: mostly false. The employer writes the check, but the money is part of your pay. The invisible part is what makes the arrangement so hard to reform.

Myth three: "Insurance should pay for every checkup"

This one sounds compassionate and is, I think, mistaken at the root.

The point of insurance is to pool the risk of large, unpredictable losses. The mathematics only works when the thing insured is uncertain. Your house might burn, but it probably won't. When a cost is certain and recurring, like a routine visit you plan to make, insurance cannot make it cheaper by pooling. It can only add a middleman. You pay a premium that includes the cost of the visit, plus the insurer's administrative costs, plus its profit or its overhead, and in return you get the visit. You have bought a prepaid plan and added an administrator.

Now, I am not telling you what preventive care to get or to skip. That is between you and your doctor. The point is financial. When a plan covers everything from the first dollar, the patient has no reason to ask what anything costs, the provider has no reason to say, and the price floats upward beyond the reach of anyone shopping. The federal health law of 2010 required plans to cover a list of preventive services without cost sharing. Defenders say that is a way to encourage people to use them. Critics say it hides the real price and raises premiums for everyone. Whichever side you take, notice that the price did not vanish. It moved into the premium.

Verdict: false as a principle, true as a feature of some plans. Insurance works best for large, uncertain losses. Using it for predictable small ones is a payment plan with paperwork.

Myth four: "Nobody with a preexisting condition was protected before 2014"

This one is the most emotionally powerful, and it needs the most care, because part of it is true.

The part that is true: before the Affordable Care Act's main provisions took effect in 2014, a person who had no continuous coverage and tried to buy a policy on his own in most states could be turned down, charged more or told the condition would not be covered. That was a real gap, and it hurt real people. I am not going to pretend otherwise.

The part that is false is the word "nobody." In 1996 Congress passed the Health Insurance Portability and Accountability Act, known as HIPAA. Among its provisions were rules that limited how long a group health plan could refuse to cover a preexisting condition, and that gave credit for earlier coverage. A worker who moved from one job to another without a long gap in coverage could carry that credit with him. HIPAA also guaranteed that people who left group coverage and met certain conditions could buy individual coverage, and it barred group plans from denying eligibility or charging higher premiums to individuals based on their health status. In other words, the large number of Americans who kept continuous coverage through employer plans were protected, by federal law, long before 2014.

Beyond HIPAA, a majority of the states ran high-risk pools, which offered coverage to people who could not get it elsewhere. High-Risk Pools Covered the Sick Before 2014, and They Could Do It Again argues that those pools could be funded well enough to do the job. And the 2010 law itself created a temporary federal program for people with preexisting conditions before its main rules began.

So the accurate version is this: protection before 2014 was partial and uneven, and it depended on whether you had stayed continuously covered. The gaps were real. The claim that no one was protected is a slogan.

Verdict: false as stated, true in part. A real gap existed for people without continuous coverage, but federal rules and state programs protected many others. The argument should be about how to close the gap, not about whether it was a desert.

Myth five: "A plan with a big deductible is not real insurance"

I hear this one constantly, and it gets the purpose of insurance backward.

A deductible is the amount you pay before the insurer starts paying. The higher it is, the lower the premium, because the insurer is taking less risk. A high-deductible plan is simply insurance that does what insurance is for: it protects you from the catastrophic bill, and it leaves you responsible for the small, predictable ones. Under the Affordable Care Act, non-grandfathered plans must cap what a person pays out of pocket in a year for covered essential benefits, so that the exposure is not unlimited.

Here is the part that critics miss. Congress created health savings accounts in 2003, in the Medicare Modernization Act signed in December of that year, so that people with these plans could put aside money, tax-free, to pay the early bills. Eleven Questions About Health Savings Accounts, Answered for Working Families answers the practical questions. The money is yours, it rolls over from year to year and it can be saved. That is the opposite of a "use it or lose it" plan, and it gives you a reason to ask what things cost.

Is a high-deductible plan right for any particular family? That is not a question I can answer, and you should not take such a decision from a post like this one. A family with little cash cushion may find a large deductible hard to face, and that is a real consideration. But the claim that such a plan is "not real insurance" has it backward. It is the most insurance-like product on the market.

Verdict: false. A high deductible is how insurance is supposed to work. The honest question is whether you can handle the deductible, not whether the plan is real.

Myth six: "Price shopping is impossible in medicine"

Anyone who has received a medical bill that arrived weeks after the visit, with a price nobody told him, will believe this. And for years it was close to true. Hospitals treated their prices as trade secrets, and a patient asking "what will this cost?" often got a shrug.

But "impossible" is too strong. Federal rules requiring hospitals to post their standard charges took effect on January 1, 2021. The hospital industry sued to block the rule, arguing that it exceeded the government's authority and violated the hospitals' rights, and it lost, in a federal district court in 2020 and then in the court of appeals. Hospitals Went to Court to Keep Their Prices Secret, and They Lost tells that story. The posted prices have been uneven, and compliance has been spotty, which I'll acknowledge. But the principle has been established: the price belongs to the patient who is being asked to pay it.

And for many services, such as imaging, lab work and scheduled procedures, patients and employers do compare prices, sometimes with surprising results. A Shopper's Playbook for Getting a Real Price Before a Medical Procedure lays out how to ask. Not everything can be shopped: an emergency is no time to compare. But a great deal of care is scheduled, and for that care a question as simple as "what is the cash price?" can start a conversation that the old system never allowed.

Verdict: false, though it is harder than it should be. Price shopping is possible for much of medicine, and the law now helps.

Myth seven: "The ACA made insurance cheaper"

I promised six, but the title would not be honest without this seventh, since it is the one that was promised most loudly.

Barack Obama promised during the 2008 campaign to cut the cost of a typical family's health insurance premium by up to $2,500 a year, and supporters of the Affordable Care Act argued that it would hold down costs. The law did expand coverage, mostly through subsidies for people buying on the exchanges and through the expansion of Medicaid. Those are real effects. But the premiums for people buying individual coverage without subsidies rose sharply in the years after the main provisions took effect, and in several years the increases were large. The subsidies protected many buyers from the sticker price, but a subsidy is a transfer: someone else pays the difference. Taxpayers did.

So the accurate claim is that the law made coverage available to more people and made it cheaper for those who qualified for subsidies, at a cost borne elsewhere, and that it did not make insurance cheaper in the plain sense of reducing what the product costs to provide. Seven Promises Made for the Affordable Care Act, Tested Against the Record tests that promise and others against the record, and The Affordable Care Act From the 2009 Town Halls to a Zero-Dollar Penalty tells the history.

Verdict: false as promised. Coverage expanded, mostly through subsidies. The price of the product did not fall.

The numbered argument

Let me draw the thread together, since the six beliefs share a root.

1. Insurance is a tool for large, uncertain losses. Every myth above comes from forgetting that.
2. When insurance is stretched to cover everything, prices vanish from view. Patients cannot shop, providers cannot compete and costs climb.
3. Third parties paying the bill make the patient less curious about the price. This is true of any good in any market, and medicine is not an exception.
4. Policies that hide costs, in the tax code, on the pay stub and in the premium, make reform harder. A reform you cannot see is a reform you cannot vote on.
5. The fix is more visibility and more ownership. Savings accounts, posted prices, portable coverage and funded pools for the very sick, all of which put money and information back in the hands of patients.

The anchor

Franklin, who helped found that insurance company, also wrote a good deal in his Poor Richard almanacs about thrift. He would have found the modern arrangement bizarre: a product designed to protect against fire that has become, in the minds of its buyers, a promise of free everything. The man who helped found a volunteer fire company and a lending library would have asked a simple question of any new scheme: who is paying, and who is watching the bill? Americans in the Founding era built institutions that answered both. We could do it again.

The case in brief

1. Insurance pays bills, and care is something a provider does, so a card is a promise and not a service.
2. Your employer's share of the premium is part of your compensation, hidden by the tax code.
3. HIPAA's 1996 rules and state high-risk pools protected many people with preexisting conditions before 2014, though the gaps were real.
4. A high deductible is how insurance works, and health savings accounts and hospital price posting give patients tools to manage it.
5. The ACA expanded coverage through subsidies but did not make the product itself cheaper.

What you can do: ask your own insurer or your employer's benefits office for a plain-language summary of your plan's deductible, out-of-pocket maximum and network rules, and ask your doctor's office for the cash price of your next scheduled service.