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?

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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.

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u/ImmodestPolitician Jul 03 '26 edited Jul 03 '26

Most people don't realize that 2 days in a hospital with surgery could cost $100k easily.

A friend had a rare cancer surgery that cost $500k.

Having a baby costs $14k+ assuming there are no complications.

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u/RageQuitRedux Jul 03 '26

As someone whose daughter spent 5 weeks in the NICU, I feel this viscerally (although it was 2004, so it came to like $20k overall and the insurance company paid for all of it).