Health insurance should protect patients from financial ruin and unpredictable medical events. However, it currently functions as a complicated payment system for every care such as checkups, lab tests, and routine prescriptions. Instead of functioning like real insurance, it often acts like a partial prepayment program for healthcare. The result is higher costs, hidden prices, and fewer choices for patients.
Real insurance pools risk against large, unpredictable losses. Homeowners’ insurance covers fires and major damage, not lawn care. Auto insurance covers crashes and theft, not oil changes. Patients should have the option to buy health insurance that operates on the same principle. Insurance that protects patients from emergencies, cancer, major surgery, and other medical events that are unpredictable, complex, or financially catastrophic.
Routine care is different. A patient should be able to shop for a primary-care visit, basic lab work, non-emergency imaging, or recurring prescriptions. These services are often predictable, defined, and available from multiple providers. They can easily be provided in a competitive consumer market where providers must win patients’ business on price and quality.
That distinction matters because the current system treats almost all healthcare as though it is an insurable event. Patients are pushed into comprehensive plans that cover routine services and catastrophic events alike. Even plans called “catastrophic” are not allowed to function as true catastrophic insurance. Under federal rules, catastrophic plans are limited to people under 30 or those who qualify for hardship or affordability exemptions. They must cover a broad set of required benefits, including routine services better suited to direct purchase.
That is not a real insurance market. It is a paternalistic regulatory structure that forces patients into comprehensive coverage whether they want it or not.
Defenders of the current system often treat comprehensive insurance as inherently pro-patient. But a truly pro-patient system would be transparent, affordable, and competitive, comprehensive insurance is none of those. When routine care is bundled into insurance, patients rarely know the actual price of the service they receive. They see only a copay, deductible, premium, and bill weeks later. Patients often have little reason to ask whether the same service would have cost less if purchased directly because they receive no benefit from doing so.
That matters for consumers because cash prices are often lower than insurance-negotiated prices. One study found hospital cash prices were lower than median commercial negotiated prices between 38.4 percent and 68.5 percent of the time. Prescription drugs show the same problem with patients overpaying on 22.9 percent of pharmacy claims. A patient can frequently buy a lab test, scan, prescription, or outpatient procedure for less outside insurance than through the plan. When patients cannot see prices in advance, and when savings from lower-cost choices flow to insurers instead of patients, providers face little pressure to compete for patients, rather they compete for insurers.
A better system would give patients the option of real catastrophic insurance that puts healthcare into two tracks. The first track would be true catastrophic insurance. Patients would buy or receive leaner coverage designed to protect against major medical risk. Insurers would compete on cost, out-of-pocket maximums, hospital networks, and protection against serious illness or injury. If a patient faces a medical disaster, insurance handles the immediate emergency and prevents financial disaster.
The second track would be a consumer market for routine care. Many patients already demand these models, and providers already offer them where regulation allows. Direct primary care practices sell routine access through monthly memberships. Cash-pay imaging centers, labs, direct-to-consumer drug platforms, and ambulatory surgery centers demonstrate how routine care can be sold with visible prices directly to patients. Real catastrophic insurance would make it easier for patients to use these existing options by lowering premiums and allowing workers or employers to direct the savings into wages, HSAs, employer routine-care contributions, or other patient-controlled funds used to buy competitively priced routine care.
This would restore insurance to its proper role: emergencies.
The solution is not complex. Congress should allow patients to purchase real catastrophic insurance. That means making catastrophic plans available to consumers of any age, giving them the same tax treatment as other health plans, and removing requirements that force them to cover routine, shoppable services. Patients who want more comprehensive coverage would still be free to buy it. But patients who want lower-premium protection against major medical risk should not be locked out by federal rules.
When patients choose to shop, providers must compete. When unforeseeable events occur, insurance should protect them. When patients have control of their healthcare dollars, providers must compete for their business, insurers must focus on real financial protection, and healthcare becomes more transparent, affordable, and accountable to consumers.
Justin Leventhal is a Senior Policy Analyst for the American Consumer Institute, a nonprofit education and research organization that advocates for consumers through evidence-based analysis and data. Follow Justin on X @JustinLeventhal