Why Health Insurance doesn’t equal Health Care

By Richard A. Armstrong MD

I just can’t wrap my head around this! Can you please explain it again?”

This was a serious question asked by a staff member of the Wisconsin legislature last week. The question arose during a presentation in Madison to help Wisconsin legislators and members of their staff understand a new model of Primary Care delivery known as Direct Primary Care (DPC).   Direct Primary Care is a membership model in which patients pay a monthly fee to a physician for the delivery of a “menu” of services.   The monthly fee is often about the same price as a cell phone contract.   Direct Primary Care practices do not send bills to third party payment systems (insurance companies), government or private.   This differentiates them from the more widely known Concierge medical practices which continue to bill patient’s insurance but offer enhanced services for their patients, such as 24 hour availability, home visits and more.  Direct Primary Care practices are not insurance, in common parlance or as legal entities.

For those of us who have been deeply involved in health care policy issues and for Dr. Brian Sachs, the Wisconsin Direct Primary Care physician to whom the question was addressed, this was somewhat surprising.  However, this thoughtful question was asked by an obviously intelligent individual and highlights a major challenge confronting everyone.  Health insurance as commonly “understood” is not true insurance.  This is one of the significant causes of our current national misunderstanding of health care financing which underlines the importance of these educational efforts.

…most people would not expect insurance to pay for house paint or for gas and oil.

Insurance, in the purest form, is a method to pool resources as a hedge against a large unexpected financial event.   Most people understand this quite well when they purchase insurance for a home or an automobile.  They know that the homeowner’s policy is for those rare unexpected events, like a fire or a hurricane, where they would not have the resources to pay for a replacement house.   They understand that auto insurance is for the rare crash, or to protect them from liability if they injure someone or damage another person’s property.  If asked, most people would not expect insurance to pay for house paint or for gas and oil.  They would think the question was silly.  But when it comes to their health insurance most Americans expect it to “cover” their routine health maintenance expenses.  How did this occur and what does it have to do with health care financing?

The origin of this incongruous view of health insurance, which is generally accepted by the majority of Americans, began long ago during World War II with a law called The Standardization Act.   During the war, wages and prices were fixed by the War Labor Board.   Employers approached the Roosevelt Administration with a request that they be allowed to offer incentives to attract qualified employees.  In response, Congress passed the Act, which allowed employers to purchase health insurance for their employees with pre-tax dollars, money they had earned but was used for health insurance prior to federal taxes being paid.  This seemed like a rational and positive plan during the war.  What has become problematic is that this federal support of private health insurance continued after the war ended, and remains to this day.

After the war the Internal Revenue Service ruled that this would remain federal tax policy and the National Labor Relations Board decided in the early 50s that health insurance could be included in collective bargaining.  The country was booming in the post war years and health care was not particularly expensive.  Industries did not hesitate to expand health insurance benefits to workers during union negotiations.   During these years the majority of Americans were still quite used to and comfortable with paying for “routine” medical care.  They expected the insurance to kick in if they had a serious illness or injury or had to be hospitalized. However, this mentality would soon change.

At first, the cost didn’t seem to be a large issue

In 1965, when Medicare passed, the law included a section (Part B) which paid for outpatient care.  This was new and resulted in a major perceptual change for patients and their physicians.  As office visits and other outpatient care were now covered by Medicare, expectations changed and spilled over to the private insurance industry rapidly.  In general, since the employee was not paying the premium directly, they were unable to “see” the true cost this was adding to their health insurance.  They were simply getting expanded services which they liked and their physicians were getting paid, often quite well.  At first, the cost didn’t seem to be a large issue, and like all businesses, the employers were simply passing on these “costs of doing business” to the purchasers of their products.  Similar to the situation after the war, this did not seem to be a problem.  However, this change perpetuated the economic disconnection for both patients and their doctors from the true cost of the health care.  Utilization of services expanded and the cost became tremendously inflated, outstripping the rate of inflation in the rest of the economy.

Today, about 155 million Americans have health insurance through their employer. It is estimated that about 50 million seniors are enrolled in the Medicare program and about 66 million individuals receive Medicaid benefits.  The majority of Americans have some type of third party health insurance which is financed through a combination of employer contributions and tax support.  It is not surprising that Americans have a hard time understanding that health care does not have to be directly connected to health insurance.

Most Americans…never realize that they are contributing this much to our current third party insurance systems.

In the popular recent book Catastrophic Care by David Goldhill, the economic disconnection between health insurance and health care is clearly analyzed.  Mr. Goldhill’s imaginary employee Becky, a recent college graduate just starting with his company, will pay over $1.2 million dollars for health insurance over the course of her career.   Most Americans, like Becky, never realize that they are contributing this much to our current third party insurance systems.  This includes premiums paid by her employer, Becky’s contributions and taxes paid into the Medicare program, and most Americans will never utilize their $1.2 million in healthcare services during their lifetime.

Only a small fraction of our American population, those who must obtain insurance outside of the programs mentioned above, are being exposed to the economic reality of the current health insurance choices offered through the ACA exchange system.  Those who do not qualify for federal tax subsidies are not pleased with what they are being forced to buy.  Insurance choices for them have high premiums which are rising.  These plans have restrictions on which doctors and hospitals can be used, known as narrow networks, and the amount the patient must pay before insurance “kicks in” is huge.  This can easily be several thousand dollars per year, making the purchaser wonder if the product is worth buying at all, especially if they are young and healthy.

As increasing numbers of Americans begin to see and understand the very real problems which have been created over the last seven decades in the health insurance market, demand for meaningful health care reform will continue to rise.  Doctors like Brian Sachs and thousands more nationwide who understand these issues are bringing reform directly to the patient, by offering to care for them in the Direct Primary Care model.

There is no reason that primary health care needs to be financed through a private or government third party insurance system.   We do not purchase other insurance this way and it isn’t necessary to continue to do this in health care.  It is the mission of the Docs 4 Patient Care Foundation and enterprising young doctors like Dr. Sachs to explain this to the woman who asked the question in Madison and to every other American patient.  We can reform American health care together once we understand why Americans have a hard time “wrapping their heads around it”.



    excellent points, when you buy insurance you may not know what you have until you make a claim. Most premiums are paid hopoing there will not be a claim.
    Current insurance is actuarially constructed for insurance to profit and build bigger buildings and insurance corporations. I learned years ago, with a serious illness that insurance can deny claims, and when ill you can’t fight them. The bigger the bureaucracy, the more likely an individual won’t get through to solve it. I had to negotiate all care with doctors and hospitals so I was self insured. A friend of mine told me to pay the premiums to myself. Higher deductibles probably mean you will pay for usual medical care yourself; if at a hospital you pay a premium price. Much better to negotiate cash at the time of visit with your physician. I could go on and on, but this article makes the point. The person that says “I have insurance” is blind and may painfully awaken if claims need to be made for their life extension.

  2. Carol Hutto NNP

    This is very informative. If a patient is enrolled in a direct primary care option what happens when a major medical issue such as Cancer or heart disease occurs? How are these expensive treatments and surgeries covered? This sounds like a good way to manage routine health needs but again how are disease states and hospitalization covered? Thanks.

  3. I think the reason for having trouble wrapping our heads around it, is that the propaganda has presented health insurance as equivalent to health care. That and the cognitive dissonance between the government message that we must all be charged for being alive by being forced to buy health insurance and the idea that we could just pay for a doctor visit directly without
    an insurance company in the mix at all.

    If we must purchase health insurance, then how is it possible to purchase health care directly from a provider without going through an insurer? Will that purchase count as having health insurance under the government’s new ( and quite, quite unconstitutional) mandates?

    Because, if I have to pay for insurance, then I want every medical expense I pay for to count towards that ridiculously high deductible. Otherwise, I am paying both for health care directly and paying for insurance(insurance from which which I am never likely to receive any benefit, except in the case of a catastrophic event.) That is where the disconnect comes, because the government has sold/is selling this freedom sucking pig of an unconstitional and tyrannical “law” as being equivalent to health care. If you have insurance, you aren’t supposed to have to pay for the doctor, because you already had to pay for the insurance and the insurance is supposed to pay the doctor.

    So, if I have to pay for insurance, and then I have to pay for the doctor too, then why should I be paying for the insurance, which the government has assured me, and my social justice warrior “friends” all say is necessary, unless I am an evil and greedy person who shouldn’t
    be allowed in polite society if I am going to ask nasty, practical questions like that and don’t I want the children and old people to have access to doctors?

    Sorry to seem so snarky, but my son has just informed me that he may be changing his entire career path to fight this, because he doesn’t think it is ethical to have to pay the government for being alive – which is what deathcare is – a fine for being alive in America. I agree with him.
    He is currently an entrepreneur, and covered by our insurance for a few more years, but says that, if he has to, he will become a politician to fight it because he will not be forced to pay for a product simply for being alive.

    What can be done in the next year or two to repeal this thing so that my son does not have to enter the moral sewer that politics in America has become?

  4. Beautifully put in perspective!

  5. Thanks for great article. As a DPC physician in Tennessee, we are experiencing the same challenges of educating others on why DPC is not only better, but the only real, workable solution to our healthcare crisis. And thanks for the history lesson. I had read this before, but glad to see others sharing the same information.
    Eric Potter MD

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