III.

Reasons for Health Insurance

Health insurance protects people from financial loss caused by the high cost of medical care. The cost of a one-day stay in a hospital—excluding the cost of all other healthcare services—can exceed $1,000 in some parts of the United States. A hospital stay that includes the cost of surgery and other physician services can easily produce bills exceeding $10,000. Healthcare costs of this magnitude pose substantial risks to most families’ financial well-being.

By combining, or pooling, the risks of many people into a single group, insurance can make the financial risks associated with healthcare more manageable. Experts can reasonably predict the healthcare costs of a large group, even though they cannot know in advance how much healthcare will be required by any given individual. Through insurance, each person who buys coverage agrees to pay a share of the group’s total losses in exchange for a promise that the group will pay when he or she needs services. Essentially, individuals make regular payments to the plan rather than having to pay especially large sums at any one time in the event of sudden illness or injury. In this way, the group as a whole funds expensive treatments for those few who need them.

Many people believe that in addition to providing financial stability, health insurance can promote good health. Supporters of this idea claim that by lowering the personal cost of services, insurance induces individuals to seek health-maintenance services more regularly than they otherwise would, thereby heading off potentially serious illnesses.