Health insurance has a long and complex history that started hundreds of years ago and continues to evolve today. In countries without a national or socialized health care system, health insurance comes in two main forms. These are scheduled health insurance and comprehensive health insurance. The latter involves varying degrees of coverage for every aspect of health care, including doctor visits, prescription drugs, hospital stays, and surgery. One of the main benefits provided by comprehensive health insurance is that the insured is protected from large, unexpected medical bills that could result in undue financial stress or even financial ruin.
An insurance company that offers comprehensive health insurance pays for health care services in exchange for monthly premiums, as well as applicable co-pays and deductibles paid by the insured. In most instances, this type of insurance pays for everything over a certain fixed amount, called the deductible, which the insured is required to pay out of his own pocket. Co-pays, or coinsurance payments, serve the same function, except that they can represent either a fixed quantity or a percentage.
Comprehensive health insurance plans are usually quite costly if paid completely by the policy holder. This is because of the high potential payout offered with a comprehensive policy, as well as the variety of services that are covered in some way. Most comprehensive plans have a limit as to the amount that they will pay in coverage over a person's lifetime, but these amounts can be in the millions of U.S. Dollars (USD). When an insurance company is exposed to this type of risk, it makes up for the risk in the form of higher premiums.
There are also other reasons why comprehensive health insurance tends to be so expensive, which is a topic of no small controversy in many places. The first is one that economists refer to as adverse selection. This means that there is a tendency for people to buy insurance only when they anticipate needing it. This means that there is a higher level of risk built into the system, which must be compensated for by higher premiums. This can be comparatively detrimental to those who, in contrast, buy insurance only as a safety net.
Another issue is the behavioral tendency known as the moral hazard. Put simply, those with insurance may be less careful about their health, or their medical expenses if they do become sick, simply because they know they are covered by insurance. Moral hazard is partially remedied by the presence of deductibles and co-pays, which place some responsibility with the consumer of health care.