How American Health Insurance Became a Scam (and What We Can Do About It)

It’s been a few weeks since United Health CEO Brian Thompson was murdered on the streets of New York City. Without a doubt, this was a horrific crime and the perpetrator should be held responsible. That said, it’s kind of surprising something like this hasn’t happened sooner. 

American healthcare isn’t known for its efficiency or affordability and certainly not for patient satisfaction. It’s infamous for the exact opposite: high costs, mind-numbing complexity, and the insurance-driven red tape that has turned healthcare providers into data entry clerks and patients into statistics. 

Year after year, premiums increase and yet, somehow, so do deductibles. All while health insurance companies rake in billions in profit. Meanwhile, doctors, PAs, nurses, and patients are left to duke it out in a system that’s become more about paperwork than patient care.

How did it get this bad? Let’s break down the issues, explore some alternatives, and talk about what can be done to take healthcare back from the insurance companies. 

The Reality of American Health Insurance: A System Set to Fail

Let’s get one thing straight: in America, health “insurance” no longer works like insurance. The purpose of insurance is to protect you financially against rare, high-cost events, like a major illness or an unexpected accident. Think car insurance covering a major collision, a life insurance payout after a premature demise, or homeowner’s insurance coming to the rescue after a fire. But in the U.S., health insurance has been turned into a convoluted mechanism for micromanaging every part of medical care, even routine check-ups, preventive care, and medications.

The Real Cost of Health Insurance for Physicians and Patients

Physician Burden and Bureaucratic Waste

Do you think your doctors’ sole focus is on making correct diagnoses and prescribing timely treatment? Think again. Today’s healthcare providers must also be experts in insurance gymnastics. 

They spend hours every week jumping through hoops to get even the most basic treatments and medications approved. Getting a CT scan or an MRI isn’t about what’s best for the patient—it’s about what hoops the doctor can jump through to satisfy the insurance gods (which turn out to be AI systems run by low-level nurses and sometimes even hourly employees without any healthcare training). 

And if that weren’t bad enough, there’s also the coding circus to deal with. Each diagnosis, procedure, and test must be assigned a precise code to avoid claim denials and revenue losses. ICD-10, CPT, CPT II, HCPCs, and all of their accompanying modifiers. 

Patients Bear the Rising Costs

While doctors are burning out from all the paperwork, patients are burning through their savings. Premiums increase every year, deductibles are now sky-high, and out-of-pocket costs have become a major financial burden. These out-of-control costs are crushing families. Medical bills account for 40% of bankruptcies in the US. 

Imagine spending thousands of dollars on health insurance only to have to pay another few thousand before your insurance even begins to pay its portion (usually only 70-80% of the total cost). And the hits keep coming with a new advent of drug deductibles! 

How Did Health Insurance Get So Bad?

Early Beginnings: The Great Depression and Blue Cross/Blue Shield

In the 1920s and 1930s, hospitals and physicians sought ways to ensure consistent payment. This led to the creation of Blue Cross (hospital coverage) and Blue Shield (physician coverage).

These plans were originally nonprofit and community-oriented, designed to pool risk and make healthcare affordable for members.

Employer-Sponsored Insurance: WWII and Tax Incentives

During World War II, the federal government imposed wage controls to curb inflation. To attract workers, employers began offering fringe benefits like health insurance.

In 1943, the IRS ruled that employer-sponsored health insurance was tax-deductible, effectively subsidizing it. This made it a highly attractive option for both employers and employees.

Growth of Private Insurers and For-Profit Models

In the 1950s and 1960s, commercial insurers like Aetna and Cigna entered the market, competing with nonprofit plans. They targeted healthier populations and used selective underwriting to reduce costs and maximize profits.

As private companies grew, they adopted a more business-oriented approach, focusing on risk management, premium setting, and cost containment.

Federal Programs: Medicare and Medicaid (1965)

The creation of Medicare (for seniors) and Medicaid (for low-income individuals) brought the federal government into healthcare financing. These programs initially covered a large segment of the population that private insurers avoided.

However, over time, private insurers became involved as contractors and administrators for these programs, further increasing their influence.

Cost Containment and Managed Care (1970s-1990s)

Healthcare costs began to rise sharply in the 1970s due to advances in technology, increased utilization, and inefficiencies such as fee-for-service driving overutilization, no strong primary care leading to fragmentation and duplication of care, lack of cost control, burgeoning administrative complexity, and aggressive pharmaceutical marketing.

Insurers adopted managed care models, such as Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs), to control costs. These models introduced network restrictions, prior authorizations, and utilization reviews.

The Health Maintenance Organization Act of 1973, signed by President Nixon, incentivized the growth of HMOs, cementing insurers’ role in managing healthcare delivery.

The Consolidation Era (1990s-Present)

Throughout the 1990s and 2000s, insurance companies consolidated, resulting in a handful of dominant players, such as UnitedHealthcare, Anthem, and Aetna.

Insurers diversified into other areas and skirted anti-trust laws via vertical integration. Insurers bought up pharmacy benefit management (PBMs) and clinics and hospitals (like Kaiser), IT and analytic services, and Accountable Care Organizations (ACOs). This allows them to control more aspects of healthcare delivery and financing.

The Affordable Care Act (ACA, 2010s)

The ACA expanded the role of private insurers by mandating coverage, creating insurance exchanges, and offering subsidies. It also imposed requirements on insurers, such as covering pre-existing conditions.

These changes increased the number of Americans relying on a corrupt system and further integrated insurers into American healthcare.

The Coding Chaos

To get paid, healthcare providers have to jump through hoops like you wouldn’t believe. Everything must be coded just right or providers face rejection: ICD-10 for diagnoses, CPT for procedures, and CPT II for performance metrics. This coding nightmare is constantly changing and creates mountains of paperwork, forces doctors to obsess over administrative minutiae (or hire staff to do the obsessing for them), and wastes time and resources that could be spent on patient care.

The Alternatives: What’s Out There?

If this is what American healthcare is going to look like for the foreseeable future, what if anything can be done? Fortunately, other models are proving that healthcare can be simpler, more affordable, and focused on actual care. Here are a few alternatives:

Direct Primary Care (DPC)

If you’ve ever wondered what healthcare would be like without insurance meddling, Direct Primary Care is your answer. With DPC, patients pay a flat fee directly to their primary care doctor, covering most or all routine care. No coding, no claims, no insurance. This gives doctors more time with patients and patients more straightforward care. The drawback? Most people already pay a premium for regular insurance and may be unwilling to pay extra for DPC. Yet, for those who can, DPC offers a refreshing return to patient-centered care.

DPC could thrive if catastrophic-only insurance becomes more common and affordable, allowing DPC to handle routine care without doubling costs.

The major drawback to this system is that specialty and hospital care are typically not included. 

Healthcare Cooperatives

Co-ops are a hybrid approach where members pool resources and cover each other’s medical expenses. Think Christian Care Ministry, Medishare, and Liberty Healthshare. Co-ops often operate with lower administrative costs and no profit motive, making them more affordable. They offer an alternative to traditional insurance by prioritizing patient needs and transparency.

Single-Payer System/Medicare for All

A single-payer system is exactly what it sounds like: one public entity foots the bill for healthcare, though healthcare delivery itself may remain private. This is the model used by many developed countries. The benefits? Lower administrative costs and a focus on patient outcomes instead of profits. Imagine a system where patients and doctors focus on care, not coding. 

The major drawback is that care would need to be rationed as demand would surely outstrip supply. Keep in mind, however, that the US already rations care… We just do it with cost instead of wait times. 

Medicare for All is an example of a single-payer system for Americans. Under this model, a publicly funded, universally accessible healthcare system would replace our current insurance-driven model. Proponents argue it would simplify coverage, reduce waste, and end the insurance micromanagement that doctors and patients loathe. Critics argue it would mean higher taxes and potential cuts to provider reimbursements, making it less appealing for some.

Medicare for All: Potential Benefits

Lower Administrative Costs If there’s only one payer, doctors, and hospitals only need to follow one set of rules. This could save billions currently lost to administrative waste, freeing resources for actual patient care.

Improved Access and Equity Medicare for All would cover everyone, which would eliminate the issue of uninsured or underinsured Americans. In theory, it could improve health outcomes by making care accessible to everyone, regardless of income.

The Concerns with Medicare for All

Taxes Medicare for All would likely mean higher taxes. While proponents argue this increase would be offset by savings on premiums, deductibles, and co-pays, it’s still a tough sell for many taxpayers. 

Provider Reimbursements Some worry that government reimbursements might be too low to support high-quality medical practices, particularly for small clinics and independent providers.

So, Is Health Insurance a Scam?

Scam: noun. a dishonest scheme; a fraud. Yup, that fits. 

American health insurance is a scam because we’re forced to pay significant amounts of money to an entity that profits by withholding the care we expect to receive in return. It’s a scam as it no longer provides value proportionate to its cost. It’s a scam because it drives up prices, adds layers of administrative waste, and leaves both patients and doctors frustrated. Insurance should be a safeguard for emergencies, not a gatekeeper for everyday care.

The Path Forward: A Healthier Future

The system is so broken that saving it with a few little tweaks seems unlikely. But so does starting from scratch. A more sustainable healthcare system will likely have to include the following:

Shift Health Insurance to Catastrophic Coverage Only

Imagine a world where health insurance covers only major medical events, like “insurance” ought to be doing in the first place. Patients would handle routine care directly with doctors, avoiding the need for endless authorizations and paperwork. 

Legislation would first have to address the somehow-legal practice of lobbying first–there’s no way insurance companies would take this lying down.  

Expand DPC and Similar Models

Direct Primary Care has enormous potential to improve front-line medical care which would help keep people healthy and out of the hospital. As more people understand its value, we may see more patients opting for upfront, transparent payment models like DPC even among specialists for those with chronic conditions.

Implement a Single-Payer or Medicare for All System

This option has its pros and cons for sure but it could eliminate administrative waste and ensure universal coverage, making healthcare simpler and more equitable.

Address Physician Shortages and Burnout

Streamlining administrative requirements and reducing insurance red tape could help retain more doctors, improving access to care and reducing wait times despite our sham of a healthcare system.

Divorce Health Insurance Coverage from Employment

Workers who lose or change jobs risk losing access to affordable healthcare, creating financial and medical insecurity. This system disproportionately affects part-time, gig, and low-wage workers who may not receive employer-sponsored benefits at all. Additionally, it burdens employers with rising healthcare costs and administrative complexities, diverting resources from core business priorities. 

Worst of all, it incentivizes insurers to focus on the short term. Insurers know that in 5+ years, you’re not going to be their problem anymore. The turnover in employment is huge and invites payers to focus on keeping costs down for just a few years until they can pawn you off on someone else. 

Increase Competition

Use public funds to train more healthcare providers. Scholarships and loan repayment can incentivize more students to enter primary care or open their own clinics, surgical centers, and even hospitals. Increased competition among healthcare providers will foster a spirit of efficiency and value. 

The government could also create or support bridge programs for nurses and PAs to become physicians as well as modernize legislation for PAs allowing them to practice at the height of their training and experience. 

Another idea to improve access and stimulate competition in healthcare would be to expand the Uniformed Services University, the US military’s medical school, to allow civilians to train without a military commitment. 

And as far as increasing educational opportunities goes, allow medical schools to expand their online offerings. If students could survive the COVID years online, it’s worth looking at long-term. Clinical training opportunities would remain a critical part of doctor and PA training, however, so this would need to grow as well. 

Conclusion

American health insurance companies, with a little help from Uncle Sam, have turned healthcare into a nightmare. The insurance model has outgrown its original purpose and mutated into something ineffective at best and criminal at worst. 

Models like Direct Primary Care and single-payer systems offer are just a few ways to refocus healthcare on what matters: patients and their well-being. It’s time to break the cycle and take healthcare back from the bureaucrats, CEOs, and shareholders. Let’s just not kill people to do it–insurance companies already have that covered. 

Are you for or against a single-payer system? Share your thoughts below!