Dr. Ashish K. Jha is a senior fellow at the Belfer Center at Harvard Kennedy School and a contributing Globe Opinion writer.
“The Cost Cure” is a Globe Opinion series outlining steps to address the rising cost of health care. Submit your email address to be notified when the next part of the series publishes.
Health insurance in America is supposed to protect people from financial catastrophe. Too often, it doesn’t. Nearly four in 10 insured Americans still report difficulty with health care costs — struggling to pay medical bills, taking on debt, or depleting savings when they get sick. That feeling of being unprotected is real, and it is widespread.
But there is a second failure, less visible and just as damaging: The design of American insurance actively drives up the cost of care. High deductibles don’t just expose patients to financial risk — they reshape how providers price services, how insurers negotiate with health care providers, and how the whole market functions. Without fixing insurance design, Americans will keep paying more and more for a system that protects them less and less.
The standard response from policy makers is to demand better coverage: lower deductibles, stricter caps on out-of-pocket spending, more generous federal subsidies. Those instincts are right. But they don’t address why insurance has stopped working in the first place. There is a market-based critique of American insurance that deserves to be taken seriously. Insurance is designed to protect against unpredictable, high-cost events — the serious illness, the major surgery, the hospitalization no one can plan for. That is what car insurance does. We don’t run oil changes through car insurance, and there is a reason for that: Insuring small, routine, predictable expenses adds administrative overhead, distorts pricing, and ultimately makes everyone pay more. The argument that that kind of mistake has been made in health care — routing everything through the insurance apparatus, triggering claims processing, prior authorization, and utilization review for a $150 doctor visit — is not wrong.
In Germany, insurance also covers routine care — but costs are far lower than in America. The difference is that German routine care is cheap, and processing a German claim costs a fraction of what it costs here. The problem is not that routine care in America is insured. It is that it is insured at American prices, with American administrative complexity, and without the price discipline that makes the German model work.
That distinction points toward the real solution.
Until those underlying problems are fixed — and the earlier pieces in this series lay out how — there is a strong case for experimenting with routing more routine care outside of insurance. Direct-pay prices for common services such as primary care, routine labs and X-rays, or even minor surgeries are often substantially lower than in-network rates. At minimum, any direct payment for medically appropriate, physician-directed care for covered services should count toward a patient’s deductible — rewarding patients who find lower-cost options rather than penalizing them.
But that only holds if lower-income patients have a real way to pay for routine care. Here it is worth being honest about the status quo: High deductibles already deter lower-income Americans from routine care, and underfunded Health Savings Accounts offer little protection. The system is failing them now. Health Savings Accounts, reformed properly — made more generous, structured so that lower-income families actually have money in their accounts — combined with the lower prices that a thriving direct-pay market would produce, means these patients could be genuinely better off than they are today. Done right, expanding direct payment for routine care would put downward pressure on prices for everyone, insured and uninsured alike. The goal would be to lower the burden of costs, not just shift it to others.
For the complex, expensive, unpredictable care that insurance is actually designed for, there needs to be smarter design of insurance coverage. Today, patients typically pay the same regardless of where they get care — no reward for choosing a lower-cost facility, no signal that one provider charges three times another for identical quality. Two approaches could fix that.
Reference pricing sets a benchmark payment for a common service — say, $800 for an MRI. Patients who choose a $600 facility save money; those who prefer a $2,000 facility pay the difference. Research on California’s public employees showed large savings from this approach. Tiered networks work on the same principle but apply it more broadly: Insurers group physicians and hospitals into tiers based on the value they deliver — comparable quality at lower cost — and patients pay lower copays and deductibles when they choose higher-value providers.
For example, a patient choosing a high-quality, low-cost hospital (top tier) for a hip replacement might pay a $500 deductible, while the same procedure might have a $1,500 deductible at a place that charges more. The insurer is no longer neutral about where patients go — it is actively steering them toward better value and comparable quality. Both designs do something the current system almost never does: They present both quality and cost data to patients and they reward choosing wisely.
Making these approaches work requires two things the current system lacks. First, genuine price and quality transparency before the point of care — not just data posted somewhere online, but clear information at the moment a patient is choosing where to go. Second, protections against surprise balance billing, so patients who choose a lower-cost option don’t end up blindsided by a bill they didn’t anticipate.
None of this requires dismantling private insurance or imposing a single national model. It requires clarity about what insurance is for, seriousness about funding access to routine care for those who need it, and willingness to design the complex end of the system to actually reward better care at lower cost.
In earlier columns, I argued that we can lower health care costs by tackling excessive prices, restoring competition, improving payment models, and cutting administrative waste. But none of those reforms would fully succeed if the design of insurance continues to suppress competition, deter needed care, and leave people financially exposed when they get sick.