U.S. Health Insurance: Shifting Toward Personalized, Cost-Effective Coverage Models

The historical shift in U.S. healthcare financing from predominantly out-of-pocket payments to insurance-based payments has been largely driven by tax exemptions on employer-sponsored health benefits and federal programs like Medicare and Medicaid. This shift has insulated consumers from the direct costs of care, contributing to increased healthcare spending and reduced price sensitivity among patients. The concentration of healthcare expenses among a small percent of seriously ill individuals presents challenges for cost containment through higher deductibles or out-of-pocket spending. Evidence indicates that higher deductibles have primarily discouraged utilization rather than incentivized shopping for lower-cost care. Fixed indemnity insurance, which provides cash payments to policyholders for medical events, offers an alternative but presents risks of inadequate coverage for costly treatments and is thus limited in appeal and regulation. Consumer preferences show strong support for expanded insurance coverage and reduced barriers to care such as prior authorization and surprise billing protections, highlighting demand for comprehensive benefits rather than minimal coverage. Employer-sponsored insurance arrangements often result in one-size-fits-all plans that include costly benefits of limited use to many enrollees, reducing plan responsiveness to individual needs. Policy approaches that allow employers to allocate pretax funds for employees to purchase individualized insurance plans could promote selection of more cost-effective coverage tailored to personal health needs. Such reforms could better address high-cost hospital and drug expenditures without merely shifting financial burdens onto the most ill patients, potentially leading to improved alignment between insurance design and patient preferences and needs.