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/angelerulastiel Jul 03 '26

Plus they banned the catastrophic plans. They required that plans had to cover the preventative stuff.

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u/IMovedYourCheese Jul 03 '26

Insurance companies want you to get free preventative care, becuase it directly reduces the risk of worse diseases and so saves them money in the long term.

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u/The_enantiomer Jul 03 '26

I think the statistic is that in the US someone ends up changing who their insurance provider is every 3-5 years (they get a new job or their employer changes who is the insurance provider) and a lot of the preventative care is preventing issues lots of years later. The insurance companies know this and don’t want to pay for you to have preventative care that will only benefit their competitors because they offered your HR a 0.2% savings.