Insurance, in its original form, is a tool for managing rare and catastrophic risk. You don’t insure your groceries. You insure your house against fire. Health insurance is the only form of coverage in which Americans routinely insure routine expenses, and the result is a product that costs far more than it should and protects against catastrophe less well than it could. The plan most economists agree healthy people should buy — high-deductible, catastrophic-only — is now nearly impossible to actually purchase.
What catastrophic insurance was supposed to be
A real catastrophic plan has a high deductible — say, $10,000 — and pays for everything above it. You handle routine doctor visits, lab work, and minor injuries out of pocket. The plan protects you from the rare expensive event: cancer, a car accident, an emergency surgery. Premiums are low because most members never trigger coverage in a given year.
This is how insurance is supposed to work, and it’s how most other lines of insurance still do work. Auto insurance doesn’t pay for oil changes. Homeowners insurance doesn’t pay for paint touch-ups. The catastrophic structure is rational, transparent, and cheap. It’s also been regulated nearly out of existence in the U.S. health market.
What the ACA did to the option
The Affordable Care Act required most plans to cover a defined package of “essential health benefits,” including preventive care, maternity, mental health, and prescription drugs, with limits on out-of-pocket maximums and lifetime caps. Those mandates have real benefits. They also raise the floor on what every plan has to cover and what every plan has to cost.
True catastrophic plans were largely eliminated. The ACA preserved a narrow exception — catastrophic plans for people under 30 or with hardship exemptions — but they’re hard to find, lightly marketed, and not eligible for subsidies, which makes them more expensive than subsidized comprehensive plans for most people who qualify. The rational option exists on paper and is unbuyable in practice.
The case against the case
Defenders of the comprehensive-coverage model argue that catastrophic plans push costs onto patients who can’t afford them and that adverse selection — only healthy people choosing catastrophic coverage — would destabilize the rest of the market. Both concerns are real. People in catastrophic plans do delay care, sometimes badly. And separating healthy and sick risk pools does raise costs for the sick pool.
These are arguments for designing the option carefully — health savings accounts to fund out-of-pocket costs, risk adjustment between pools, subsidies tied to income — not for eliminating the option entirely. Switzerland and the Netherlands both run private insurance markets with meaningful catastrophic-style choices and lower per-capita costs than the U.S.
The bottom line
The American health insurance market has eliminated the option that most personal finance logic suggests young, healthy people should buy. The reasons are partly defensible — adverse selection is real — and partly the result of mandates that prioritize universal benefit packages over consumer choice. The result is a market in which the rational product is unavailable and the available products are more expensive than they need to be.
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