High Usage Rates
Insurance usually works on the principle that "the many pay for the few." (e.g., 100 people pay for fire insurance, but only 1 house burns down).
In health insurance, almost everyone claims. Everyone goes to the dentist; everyone gets sick. Because the insurer knows they will have to pay out claims to almost every policyholder, the premiums must be high enough to cover those costs plus administration.
Rising Medical Costs
- Dental Fee Guides: Dentists increase their fees annually to keep up with inflation and staffing costs. Insurers must raise premiums to match.
- Drug Prices: New "biologic" drugs can cost thousands of dollars per month. Even one patient on these drugs impacts the risk pool for everyone.
Anti-Selection
People who are sick are more likely to buy insurance than people who are healthy. This phenomenon, called "anti-selection," drives up costs. To combat this, insurers use:
- Waiting Periods: To stop you from buying insurance today to fix a cavity tomorrow and then cancelling.
- Caps: Maxima on drug and dental spending to limit their liability.