The Insurance Pool
Health insurance is a mechanism for pooling risk. Medicare for All is a proposal for extending an existing version of that mechanism to everyone. This piece explains both — how insurance works, where it went wrong, and what “Medicare for All” actually means.
Health insurance is a mechanism for spreading financial risk across a large population so that no single person bears the catastrophic cost of serious illness alone. Everyone pays in, and everyone draws down when needed. Across a lifetime, most people are sometimes healthy, and sometimes need medical care. The function of insurance is to spread the cost of care across users. Insurance functions differently from a normal consumer market.
A productive market system (fair profit for a valuable service) requires something insurance cannot provide: a real exit option. A functioning market depends on customers who can walk away — who can comparison shop, switch providers, or go without. Competition disciplines prices and quality only when exit is possible. Remove the exit and you remove the mechanism that makes markets work.
Contents
Health insurance has no real exit. You cannot opt out of needing healthcare. You cannot comparison shop from an ambulance. You cannot absorb a $400,000 cancer treatment out of pocket and move on. The population that needs health insurance is captive by definition. It is everyone, sooner or later.
This is why health insurance belongs in the same category as water systems, roads, and fire departments. The same is true of the water department: collective mechanisms serving captive populations do not function as markets. They function as infrastructure. The question is whether to run them for public benefit or private profit. Public service is not a business.
Profit Entered a Captive System
Blue Cross Blue Shield began as a nonprofit. So did many of the early hospital insurance plans. The nonprofit structure aligned with the mechanism — the point was to cover the pool, not extract from it. When Blue Cross operated as a nonprofit, 95 cents of every premium dollar went toward medical care.[7]
For-profit insurers entered early and competed aggressively. They had a structural advantage: they could cherry-pick younger, healthier customers and charge different rates based on risk. The nonprofit community-rating model — everyone in the pool pays the same — couldn’t survive that competition without adapting. The pool logic eroded as experience rating took over.[8]
By the time for-profit insurance became the dominant model in America, the ratio had shifted. The same premium dollar that once delivered 95 cents of care was delivering 80 cents — and in some plans less. The difference didn’t go to patients. It went to shareholders.
This gap is the extraction premium. It exists in every plan, every year, as a feature of inserting shareholder return into a captive population mechanism. Nothing about the pool fundamentally changed: the incentive structure did. And the incentive determines what the system does and how it works.
The Tollbooth
The extraction mechanism is not complicated. A third party sits between the patient and the care a physician has already determined is necessary. That third party has veto power over the clinical decision. It did not examine the patient. It did not train for a decade to make medical judgments. It collects the premium, and it decides whether the care gets paid for.
The patient has no real exit from this arrangement. You cannot comparison shop from an ambulance. You cannot opt out of needing cancer treatment. You cannot absorb a $400,000 hospital bill and move on. You did not choose your insurer in any meaningful sense — your employer chose it, or your income determined it, or your state’s marketplace offered it as the least bad option. You cannot switch mid-crisis. The population that needs health insurance is captive by definition, and a captive population cannot discipline a market.
Patient → Physician recommends care → Insurer reviews → Prior authorization / claim denial / network restriction → Care delayed or rejected
Each mechanism in that chain serves the same function: reduce the number of claims paid while continuing to collect premiums.
- Prior authorization requires physicians to get approval from untrained clerks or AI before providing treatment.
- Claim denial can reject payment after care is already delivered, even with pre-approval.
- Network restrictions limit which physicians and facilities a patient may use.
- Out-of-network penalties extract additional cost from patients who had no viable in-network option.
This is not inefficient — it’s the product. The administrative apparatus exists to generate the gap between premiums collected and care delivered. Every denied claim, every delayed approval, every out-of-network penalty is revenue retained. Those barriers are not side effects of the system. They are part of how the system generates revenue.
People have no recourse that doesn’t cost more than compliance. Fighting a denial requires time, documentation, and persistence that a sick person or their family may not have. The system is designed around this constraint. A well person with full resources and unlimited time might win an appeal. Most people in a medical crisis are neither.
The physician’s clinical judgment — the productive core of the entire system — has been subordinated to a financial gatekeeper whose incentive runs directly against delivering the best healthcare the physician prescribed.
The Price of the Tollbooth
U.S. healthcare spending: $14,885 per person
Comparable wealthy nations: $7,371 per person
U.S. life expectancy: 4.1 years below comparable country average
This spending does not produce better health. American life expectancy in 2023 was 78.4 years — 4.1 years below the average of comparable countries.[4] Maternal mortality in the US runs more than three times the rate of most other high-income nations. An infant is roughly three times more likely to die in the United States than in Finland, Japan, or Sweden.[5] The country that spends the most gets among the worst outcomes.[1][2][3]
The extraction shows up most clearly in the administrative costs. The United States spends over $1,000 per person — man, woman, and child, insured or uninsured — on healthcare administration. This is roughly five times more than the average of other wealthy countries.[6] This money does not pay a single doctor. It does not fund a single treatment. It runs the apparatus that processes claims, issues denials, manages prior authorizations, and enforces network restrictions. And it feeds CEO salaries and stockholder dividends.
This gap is the tollbooth tax. It appears in premiums, in denied claims, in the hours spent on hold appealing a decision a clerk made about care a physician ordered. It is not a side effect of the system. It is what the system produces.
Other wealthy countries cover their entire populations and spend that $7,371 per person. America spends $14,885 and leaves millions uninsured. This is the extraction layer.
Medicare is an Example
Medicare is not a perfect system. It has gaps, cost-sharing requirements, and its own administrative burdens. But it is the closest thing to a non-extractive system we have experience with.
The current pool is everyone 65 and older. Enrollment is not contingent on employment, income, or an employer’s choice of plan. The federal government negotiates rates directly with providers. There is no corporate shareholder. There is no profit motive embedded in the claims decision. The question of whether a claim gets paid is not also the question of whether a quarterly earnings target gets met.
Medicare administrative overhead: ~2% of expenditures
Private insurance administrative overhead: ~12% of expenditures
The difference: the cost of an apparatus Medicare does not need
Prior authorization exists in Medicare but at significantly lower rates than in private insurance. Claim denial exists but without the financial incentive that drives denial rates in for-profit plans.
The physician’s relationship to the patient is not identical under Medicare to what it would be in a system with no insurance layer at all. But the financial gatekeeper whose profit depends on denial is largely removed. The clinical decision sits closer to the person who examined the patient.
Medicare is also not immune to extraction — pharmaceutical pricing, Medicare Advantage privatization, and contractor arrangements all represent extraction pressure on the program. Those are real and worth a separate examination. But the core structure — universal pool, no shareholder, administrative cost serving health care rather than profit — is what private insurance replaced when it became the dominant American model.
Health Insurance as Infrastructure
Medicare for All is a description of a possible way to reform health care in America. It means extending the existing Medicare mechanism to the entire population:
- One pool instead of thousands
- No shareholder profit embedded in the claims decision
- Administrative costs tied to running the program rather than generating shareholder returns
- A physician’s clinical judgment as the primary determinant of what care gets delivered
- The financial gatekeeping function largely removed
The phrase triggers strong reactions, most of them responses to a political label rather than to the structure the label describes. The reactions are predictable — socialism, government control, loss of choice. Each of those arguments is worth examining on its merits. But they are arguments about the label. The structure is what this piece has been describing.
Americans already have Medicare. It already works on the logic described here. It already costs less to administer than private insurance. It already covers everyone in its pool regardless of employment status or employer choice. The argument for extending it is not ideological. It is structural. The mechanism that works for Americans over 65 works because of how it is built, not because of who it covers.
The American health insurance system is wealth extraction. Premiums flow in. The administrative apparatus maximizes the gap between premiums collected and care delivered. The difference flows to shareholders. The physician’s judgment is subordinated to the financial gatekeeper’s incentive. The captive population pays twice what comparable countries pay and lives shorter, sicker lives for it.
Universal healthcare means replacing this system with one built on real insurance — a pool large enough to spread risk broadly, an administrative structure that serves coverage rather than extraction, and a claims decision that answers to medicine rather than to a quarterly earnings report.
A related article is on Substack, and the same article is reproduced on this site with references.
Sources and Further Reading
- “How Does Health Spending in the U.S. Compare to Other Countries?” Peterson-KFF Health System Tracker; 2026. https://www.healthsystemtracker.org/chart-collection/health-spending-u-s-compare-countries/
- “How Does the U.S. Healthcare System Compare to Other Countries?” Peter G. Peterson Foundation; 2025. https://www.pgpf.org/article/how-does-the-us-healthcare-system-compare-to-other-countries/
- “International Comparison of Health Systems.” KFF; 2025. https://www.kff.org/global-health-policy/health-policy-101-international-comparison-of-health-systems/
- “How Does U.S. Life Expectancy Compare to Other Countries?” Peterson-KFF Health System Tracker; 2025. https://www.healthsystemtracker.org/chart-collection/u-s-life-expectancy-compare-countries/
- “US Has Highest Infant, Maternal Mortality Rates Despite the Most Health Care Spending.” AJMC; 2023. https://www.ajmc.com/view/us-has-highest-infant-maternal-mortality-rates-despite-the-most-health-care-spending
- “NHE Fact Sheet.” Centers for Medicare and Medicaid Services; 2026. https://www.cms.gov/data-research/statistics-trends-and-reports/national-health-expenditure-data/nhe-fact-sheet
- “Insurance Policy: How an Industry Shifted from Protecting Patients to Seeking Profit.” Stanford Medicine; 2017. https://stanmed.stanford.edu/how-health-insurance-changed-from-protecting-patients-to-seeking-profit/
- “History of Health Insurance and Predictions for the Future.” Health for California; 2024. https://www.healthforcalifornia.com/blog/history-of-health-insurance