The senseless killing of UnitedHealthcare CEO Brian Thompson has shocked the nation. While the vast majority of Americans are horrified, an unhinged minority has taken delight in this tragedy, revealing a shocking ignorance about how health insurance works.
Insurance, in general, is an industry people love to hate. It feels like a con: You pay good money for premiums and seemingly get nothing in return if you don’t experience the insured event. But this misses the point.
What you “consume” when you buy insurance isn’t health care — it’s protection from the financial ruin you’d face if disaster struck. That peace of mind is enormously valuable and is the reason insurance exists. Living under the constant threat of catastrophic loss is traumatic. Insurance lets us trade uncertainty for security.
Still, people feel frustrated with the industry, and much of that frustration stems from misconceptions about what insurance can and cannot do. Ideally, we’d like to insure against getting sick altogether, but that’s impossible.
Insurance can only limit the financial burden of illness, not the suffering itself. This limitation is understandably unsatisfying. In a perfect world, the agony of cancer could be spread across a thousand people as nothing more than a paper cut. But the world doesn’t work that way.
Denials of care have also dominated recent conversations. While the primary benefit of insurance is risk protection, it comes with a downside: It reduces or eliminates the consumer’s direct cost of care. When something is free, people tend to use more of it. This is called “moral hazard.”
The famous RAND Health Insurance Experiment in the 1970s illustrated this point. Participants in a “free care” plan (with zero cost-sharing) used 30 percent more health care than those in a high-cost-sharing plan where individuals paid 95 percent of their medical expenses. Crucially, this increased utilization had no meaningful effect on health outcomes.
But moral hazard isn’t the whole story. Health care providers — particularly those paid on a fee-for-service basis — also respond to incentives. Physicians are almost always motivated by the best interests of their patients, but they’re also human. And humans respond to financial incentives.
When doctors are paid more for doing more, there’s a natural tendency to favor action over inaction, even when the best course might be watchful waiting. This dynamic is amplified when patients face little or no out-of-pocket cost, making “doing something” feel preferable to “doing nothing.”
Another critical point often overlooked is the role of employers. Roughly two-thirds of workers are employed by firms that self-insure, meaning the employer pays the claims while the insurer simply processes them. This makes the employer the real payer, not the insurance company.
Employers decide how aggressively they want insurers to push back on questionable or excessive treatments. Insurers, in turn, employ physicians and analyze mountains of data to make coverage decisions. These decisions are not arbitrary; they reflect the payer’s desire to control costs in a system heavily biased toward expensive interventions — some necessary and lifesaving, others less so.