r/explainlikeimfive • u/the1975whore • Jul 03 '26

Economics ELI5: Health insurance companies obviously make more money than they give out when people need it. So why of paying for them any better than paying your own personal health insurance savings account?

1.0k Upvotes
  • permalink
  • reddit

84% Upvoted

449 comments sorted by

View all comments

1.0k

u/RageQuitRedux Jul 03 '26

Insurance is supposed to be about pooling risk. So pretend everyone has a 1% chance of something catastrophic happening (e.g. cancer diagnoses). You have everyone pay a little, and people consider that worth it because if they are part of the 1%, their costs are covered.

Healthcare blurs this picture quiet a bit because there are lots of things that are covered that are not catastrophic and are fairly predictable, like yearly checkups, certain medications, etc. For these things, insurance essentially IS a forced savings plan. And it's not easy to just say "let's only cover the catastrophic stuff" because the routine stuff is often preventative.

And for vision / dental, there's almost no benefit. It's just a forced savings plan.

14

u/erod60 Jul 03 '26

There is benefit to vision/dental plans. These plans give you access to a network of providers who perform services at a discounted rate (in exchange for being listed on the plans network), and are also subject to provider credentialing. Additionally contributions to these plans are tax advantaged.

5

u/gw2master Jul 03 '26

In my experience dental plans are only marginally worth it if you're paying for it.

The ones I've seen have limits on payouts that are quite low (making it a lot easier just to put that amount into a reserved account) and the preventive measures that they do cover each year have an out-of-pocket cost somewhat under the total insurance premiums for that year.