Mandatory Purchase, Shrinking Coverage
David is 38, lives in Tampa, Florida. He’s a physical therapist making $68,000 a year. He’s healthy, doesn’t smoke, exercises regularly, hasn’t had a car accident in 12 years. He’s the kind of customer insurance companies claim to want.
Here’s what insurance costs him every year:
Health insurance: $4,800/year
- Employer plan: Employee pays $400/month for family coverage (him and his wife)
- Deductible: $3,500 per person ($7,000 family)
- Out-of-pocket maximum: $8,000 per person ($16,000 family)
- Co-pay: $40 for primary care, $80 for specialists
Auto insurance: $2,340/year
- Two cars, full coverage
- Clean driving records, good credit
- Tampa rates (high due to uninsured drivers and fraud)
Homeowners insurance: $3,600/year
- Standard coverage on $320,000 home
- Florida rates (hurricanes)
- Increased 45% in last 3 years
Umbrella policy: $450/year
- $1 million coverage (recommended by insurance agent)
Life insurance: $720/year
- $500,000 term policy (20-year)
Total annual insurance: $11,910
David makes $68,000. After taxes, he takes home about $52,000.
He spends 22.9% of his take-home pay on insurance.
Nearly a quarter of his net income goes to insurance before he:
- Uses his health insurance (still has to hit that $3,500 deductible)
- Gets in a car accident (still has to pay the deductible)
- Files a homeowners claim (still has a deductible, and his rates will increase)
He’s paying $11,910/year for the privilege of maybe getting coverage if something happens, after he pays more money first, assuming they approve the claim.
The Health Insurance Scam
David’s employer pays $10,400/year for his family health insurance. David pays $4,800/year. Total: $15,200/year.
For a plan with a $7,000 family deductible.
That means David’s family pays $15,200 in premiums, and if they actually use the insurance, they pay the first $7,000 of medical costs too.
Total before insurance pays anything: $22,200
If David’s family has a bad year—someone breaks a bone, a kid needs surgery, an unexpected illness—they could hit their out-of-pocket maximum of $16,000.
Total cost in a bad year: $15,200 (premiums) + $16,000 (out-of-pocket) = $31,200
That’s 45.9% of David’s gross income. For one bad medical year.
The Deductible Shift
1999 average employer health insurance:
- Employee premium contribution: $1,543/year (family)
- Deductible: $287
- Out-of-pocket max: $2,000
2024 average employer health insurance:
- Employee premium contribution: $6,575/year (family)
- Deductible: $4,200 (family)
- Out-of-pocket max: $9,200
Adjusted for inflation:
- Premiums should be: $2,832 (actually: $6,575 – up 132%)
- Deductible should be: $527 (actually: $4,200 – up 697%)
Your premiums more than doubled. Your deductible increased seven-fold.
You’re paying more and getting less.
The Denial Machine
David’s wife needed an MRI for severe migraines. Doctor ordered it. Insurance denied it as “not medically necessary.”
They appealed. Denied again.
Doctor wrote a letter explaining why it was necessary. Took three weeks. Approved.
By then, she’d had the MRI anyway (couldn’t wait three weeks in severe pain) and paid $2,400 out of pocket.
Insurance eventually reimbursed $1,800 (the “negotiated rate”). She still paid $600 that counted toward her deductible.
The insurance company’s strategy:
- Deny first (30% of people don’t appeal)
- Make appeals difficult (another 20% give up)
- Delay approval (maybe they pay out of pocket)
- Approve only after multiple appeals
Industry data on denials:
- 19% of in-network claims are initially denied
- 50% of denials are never appealed
- Of appeals, 60% are eventually approved
- Meaning: 30% of valid claims are denied and never paid
Insurance companies profit by denying claims. The more they deny, the less they pay out, the higher their profit margin.
Prior Authorization: The Bottleneck
David takes a medication for high blood pressure. It costs $180/month with insurance.
Every year, his insurance requires “prior authorization” to continue the medication he’s been taking for five years.
His doctor has to:
- Fill out a form (20 minutes of staff time)
- Submit medical records
- Justify why this medication (usually: because it works and he’s been on it for years)
- Wait 7-10 days for approval
If approval doesn’t come before his prescription runs out, David either:
- Goes without medication (dangerous)
- Pays full price ($650/month) until approval
Why does insurance do this?
Not for medical reasons. For financial reasons:
- 30% of prior authorizations are denied initially
- Of those, 40% of patients don’t appeal
- Result: Insurance doesn’t pay for medication they should cover
It’s not about your health. It’s about their profit margin.
The Network Game
David’s insurance is “in-network” at most doctors and hospitals in Tampa.
But last year, his daughter needed emergency surgery. They went to an in-network hospital. The surgeon was in-network. The anesthesiologist was out-of-network.
The anesthesiologist billed $4,800. Insurance paid $600 (out-of-network rate). David got a bill for $4,200.
He called the insurance company: “The surgery was an emergency, we went to an in-network hospital, how is this our fault?”
Insurance: “You should have verified all providers were in-network before the surgery.”
David: “My 8-year-old daughter had appendicitis. Should I have asked the anesthesiologist for their network status while she was in pain?”
He fought it for six months. Eventually paid $2,800 in a “settlement” with the anesthesiologist.
This is called “surprise billing.”
It’s legal in most cases. Insurance companies know it happens. They don’t care. It’s not their money.
Who Profits: Insurance Companies
UnitedHealth Group (2023):
- Revenue: $371.6 billion
- Net income: $22.4 billion
- CEO Andrew Witty compensation: $23.5 million
- Medical loss ratio: 82.4% (spent 82.4% of premiums on actual care)
Cigna (2023):
- Revenue: $195.3 billion
- Net income: $6.7 billion
- CEO David Cordani compensation: $20.9 million
- Medical loss ratio: 83.1%
Anthem/Elevance (2023):
- Revenue: $171.3 billion
- Net income: $6.0 billion
- CEO Gail Boudreaux compensation: $21.1 million
- Medical loss ratio: 85.2%
CVS Health (includes Aetna) (2023):
- Revenue: $357.8 billion
- Net income: $8.3 billion
- CEO Karen Lynch compensation: $21.3 million
Combined profits of top 4: $43.4 billion
They made $43.4 billion in profit by:
- Collecting premiums
- Denying claims
- Raising deductibles
- Limiting networks
- Making you fight for coverage
Remember: A “medical loss ratio” of 82-85% means they consider paying for your medical care a “loss.”
The goal is to minimize the “loss” (your healthcare) and maximize profit.
Auto Insurance: Required by Law, Priced at Will
David is required by Florida law to have auto insurance. If he doesn’t, he:
- Can’t legally register his car
- Can’t legally drive
- Faces fines up to $500
- Can have his license suspended
So he must buy insurance. And in Florida (like most states), he has very few choices.
The Auto Insurance Oligopoly
Top auto insurers (2023 market share):
- State Farm: 16.4%
- GEICO (Berkshire Hathaway): 14.4%
- Progressive: 13.8%
- Allstate: 10.1%
- USAA: 6.5%
Top 5 control: 61.2% of market
In many states, 3-4 companies control 70%+ of the market.
Florida: A Case Study in Failure
David lives in Florida, which has some of the highest auto insurance rates in the country.
Florida average auto insurance: $2,560/year National average: $1,771/year
Why is Florida so expensive?
Not because Florida drivers are worse. Because Florida’s insurance system is broken:
Personal Injury Protection (PIP) fraud:
- Florida requires PIP coverage (pays medical bills regardless of fault)
- Clinics fraudulently bill insurance for unnecessary treatments
- Estimated fraud: $1 billion/year
- Insurance companies pay the fraudulent claims
- Then raise everyone’s rates to cover the losses
Who fixes this? Not the insurance companies. They profit from raising rates.
Uninsured drivers:
- 20% of Florida drivers are uninsured (6th highest in U.S.)
- Accidents with uninsured drivers cost insured drivers
- Insurance companies raise rates to cover uninsured motorist claims
The solution? Not enforcement or fraud prevention. Just raise rates.
The Rate Increase Cycle
David’s auto insurance was $1,680/year in 2020.
Now it’s $2,340/year—a 39% increase in four years.
His driving record didn’t change. His cars got older (should be cheaper). He didn’t file any claims.
What changed? Insurance company profits.
Progressive’s auto insurance profit margin:
- 2020: 5.3%
- 2023: 9.8%
They didn’t just raise rates to cover costs. They raised rates to increase profit margins.
The Accident Penalty
David’s 24-year-old neighbor had his first at-fault accident in seven years. Minor fender-bender. $2,800 in damages. Insurance paid.
His premium went from $1,980/year to $3,240/year—a 64% increase.
He’ll pay an extra $1,260/year for the next three years.
Total penalty for a $2,800 accident: $3,780 in rate increases.
The insurance company paid $2,800 and will collect $3,780 back in higher premiums. Plus, they’re collecting higher premiums from everyone else.
They profit from the accidents they’re supposed to cover.
Homeowners Insurance: The Climate Profiteering
David bought his house in 2018. His homeowners insurance was $1,800/year.
2024: $3,600/year.
That’s a 100% increase in six years.
Why? “Climate risk and increased claims,” according to his insurer.
But here’s what actually happened:
The Florida Homeowners Crisis
Florida homeowners insurance is in free-fall:
Major insurers leaving Florida:
- State Farm (stopped writing new policies in 2023)
- Farmers (stopped in 2021)
- Allstate (stopped in 2022)
- AAA (stopped in 2022)
Result:
- 15+ smaller insurers went bankrupt (2020-2023)
- Remaining insurers raised rates 40-60%
- Many homeowners forced onto state-run Citizens Property Insurance (last resort, expensive)
Why are insurers leaving?
They claim: Hurricane risk too high, can’t make money.
Reality check:
Major Florida hurricanes (2018-2023):
- Michael (2018): $25 billion
- Irma (2017): $50 billion
- Ian (2022): $112 billion
Insurance company profits during same period:
State Farm (all lines, not just Florida):
- 2018-2023 combined net income: $23.4 billion
Allstate:
- 2018-2023 combined net income: $19.1 billion
They made billions in profits nationwide while claiming Florida losses made the state “uninsurable.”
The Real Strategy
Insurers aren’t leaving Florida because it’s unprofitable. They’re leaving because:
- They can make higher profit margins in other states
- Raising rates 60% is politically difficult
- But if they threaten to leave, they can raise rates and blame “climate risk”
- States give them rate increases to prevent insurers from leaving
Result:
- Insurers get massive rate increases
- Maintain or increase profit margins
- Blame climate change (which is real, but not the reason for rate increases)
Proof:
Florida insurance company profits (companies that stayed):
- Universal Property & Casualty: 2023 profit margin 18.4%
- Heritage Insurance: 2023 profit margin 12.7%
- FedNat: Profitable after years of losses
They’re making money. The rates are just higher.
The Coverage Reduction
David’s 2024 policy doesn’t just cost more. It covers less:
What changed:
- Roof coverage: Actual cash value (depreciated) instead of replacement cost
- Hurricane deductible: 5% of home value ($16,000) instead of $2,500
- Flood coverage: Excluded entirely (must buy separate policy)
- Mold coverage: $10,000 limit (was $25,000)
He’s paying double for a policy that covers significantly less.
If a hurricane damages his roof, insurance pays depreciated value. For a 10-year-old roof, that’s maybe 40% of replacement cost.
If he has $50,000 in hurricane damage:
- He pays first $16,000 (5% deductible)
- Insurance might pay $20,000 (depreciated values, excluded items)
- He’s out of pocket $30,000
For a policy he pays $3,600/year for.
Life Insurance: The Only Honest One?
David’s life insurance is actually the best deal he has: $720/year for $500,000 in coverage.
Why is term life insurance cheaper and more straightforward?
Because the insurance company wants you to pay premiums and never use it. If you die, they pay. If you don’t, they profit.
Statistics:
- Only 1-2% of term life insurance policies ever pay out
- Most people outlive their term or let it lapse
- Insurance companies collect premiums for decades and never pay claims
Result:
- Life insurance is profitable
- Prices are competitive (more companies can enter the market)
- Coverage is straightforward (if you die, they pay)
Compare to health insurance:
- Almost everyone uses health insurance
- Claims are frequent
- Insurance companies have incentive to deny claims, raise deductibles, limit coverage
Life insurance is what insurance should be: pool risk, charge fair premiums, pay legitimate claims.
Health insurance is what happens when profit motive conflicts with coverage.
The Employer-Sponsored Trap
Remember from Part 2: In 1970, employers paid 100% of health insurance.
Now, David pays $4,800/year of his own money, his employer pays $10,400, and he still has a $3,500 deductible.
But here’s the trap:
If David quits or gets fired, he loses coverage. He can get COBRA:
- Same insurance
- Costs $15,200/year (the full premium)
- Plus 2% administrative fee
- Total: $15,504/year
Or he can buy on the ACA marketplace:
- Similar coverage
- Costs $12,000-14,000/year (for his family)
- Still has deductibles and out-of-pocket maximums
Either way, if David loses his job, he’s paying $12,000-15,000/year for health insurance.
This ties him to his employer. He can’t easily quit. Can’t take a risk on a startup. Can’t negotiate for better pay (employer can threaten to reduce health benefits).
His health insurance is golden handcuffs.
The Uninsured and Underinsured
Currently uninsured: 8.4% of Americans (27.5 million people)
Underinsured: 23% of insured adults (have insurance but can’t afford to use it due to high deductibles)
Combined: 30% of Americans either have no insurance or insurance they can’t afford to use
They’re one medical emergency from bankruptcy.
The Math: What David Pays vs. What He Gets
David’s total insurance spending:
- Premiums: $11,910/year
- Average out-of-pocket medical (co-pays, deductible): $2,800/year
- Total: $14,710/year
What he gets:
- Health coverage: After $3,500 deductible, after fighting denials, after prior authorization
- Auto coverage: Only if he has an accident, minus deductible, plus rate increase penalty
- Home coverage: Only if he has a claim, minus deductible, with depreciated values
- Life coverage: Only if he dies
He pays $14,710/year for the possibility of partial coverage if something bad happens.
David’s breakdown:
- Gross income: $68,000
- Take-home: $52,000
- Insurance: $11,910 (22.9% of take-home)
- Out-of-pocket medical: $2,800 (5.4% of take-home)
- Total healthcare/insurance: $14,710 (28.3% of take-home pay)
Nearly a third of his take-home pay goes to insurance and medical costs.
And he’s healthy.
The International Comparison
United States:
- David pays: $4,800/year in premiums + $2,800 out-of-pocket = $7,600/year
- His employer pays: $10,400/year (that’s part of his compensation)
- Total: $18,000/year for his family
United Kingdom (NHS):
- Cost: Included in taxes
- Additional private insurance (optional): $2,000-3,000/year for family
- No deductibles, no co-pays, no denials
- Total: $0-3,000/year
Germany:
- Statutory health insurance: $6,000-8,000/year (family)
- No deductibles
- Minimal co-pays ($10-15)
- Total: $6,000-8,000/year
France:
- Public health insurance: $3,500/year (family)
- Covers 70% of costs
- Supplemental insurance: $1,500/year (covers the other 30%)
- Total: $5,000/year
We pay 2-4 times more than other developed countries for health insurance.
And our coverage is worse (deductibles, denials, network restrictions).
Who Profits: All of Them
Health insurers (2023 combined):
- Top 4 profit: $43.4 billion
- CEO compensation: $85 million combined
Auto insurers (2023 combined):
- Top 5 profit: $42 billion
- CEO compensation: $120 million combined
Property insurers (2023 combined):
- Top 5 profit: $38 billion
Life insurers (2023 combined):
- Top 5 profit: $35 billion
Total insurance industry profit (2023): ~$158 billion
They’re collecting premiums, denying claims, raising deductibles, and posting record profits.
While David pays $11,910/year and still owes $2,800 out of pocket when he actually uses the insurance.
The Shift: From Coverage to Profit
1970s insurance:
- Employer-paid health insurance (no premiums)
- Low deductibles ($100-200)
- Auto insurance: $300-400/year average
- Coverage was comprehensive
2024 insurance:
- Employee-paid premiums ($6,575/year average)
- High deductibles ($4,200 average)
- Auto insurance: $1,771/year average (4-5x higher, inflation-adjusted)
- Coverage is limited (networks, prior authorization, denials, exclusions)
The shift:
- From covering risk to managing profit margins
- From paying claims to denying claims
- From comprehensive coverage to high-deductible plans
- From employer-paid to employee-paid
Who benefits:
- Insurance company shareholders
- Insurance company executives
- Insurance company lobbyists ($633 million in lobbying, 2023)
Who pays:
- David: $14,710/year
- Everyone with insurance
Connecting the Costs
Let’s update our running total for our people:
Sarah (nurse):
- Income shortfall from Part 1: $625/month
- Internet/phone (Part 7): $170/month
- Health insurance (employee share): $200/month
- Auto insurance: $140/month
- New monthly insurance total: $340
- Remaining after all costs: $115/month
Jason (teacher with $11,400 credit card debt):
- Health insurance (family): $550/month (employee share)
- Auto insurance (2 cars): $185/month
- Homeowners insurance: $150/month
- Insurance total: $885/month
- Already struggling, credit cards maxed
Jennifer (pharmacy tech, $220/month short):
- Health insurance: $180/month
- Auto insurance: $160/month
- Renters insurance: $20/month
- Insurance total: $360/month
- Now $580/month short instead of $220
Maria (home health aide, overdraft fees):
- Health insurance (Medicaid, barely qualifies): $0
- Auto insurance (liability only): $145/month
- No other insurance (can’t afford it)
Rachel (customer service rep):
- Health insurance: $250/month
- Auto insurance: $155/month
- Renters insurance: $18/month
- Insurance total: $423/month
David (physical therapist):
- All insurance: $993/month average
- Takes 22.9% of take-home pay
Every single one of them is paying mandatory insurance costs that shrink their available income before they even get to food, utilities, or savings.
What’s Next
We’ve covered eight massive cost categories, all showing the same pattern:
- Mandatory purchase or necessity
- Limited competition or monopoly
- Prices rising faster than costs
- Coverage/service declining
- Record corporate profits
In Part 9, we’re examining all the other fees—the death-by-a-thousand-paper-cuts of modern life. ATM fees, convenience fees, processing fees, service fees, resort fees, early termination fees, late fees, and hundreds more.
Because the big expenses aren’t enough. They’re charging you for everything.
Passing the Buck: Why We Pay More But Make Less is a 15-part series examining how corporations and government systematically shifted costs onto working Americans—while wages stagnated and benefits disappeared.
Even that's Odd 
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