A health insurance plan is a legally binding contract entered into by an insurance company and an individual under which the insurance company agrees to meet a specified range of medical expenses arising during the period of the contract in exchange for the payment of a premium. The contract is normally made for a period of one year and may or may not be renewable. In cases where the contract is renewable there is no guarantee given or implied that the premium will remain the same.

Okay, enough of the gobbledygook! It does however illustrate one of the major complaints made against health insurance companies and that is that they are only too willing to sell you a policy but, when it come time to pay out on a claim, they'll use a mountain of complicated paperwork and bureaucracy to delay payment or avoid payment altogether.

This is not however the most commonly heard complaint which is that health insurance plans are simply too expensive and, in many cases, are now beyond the reach of many people altogether. But just why is this?

The simple answer would be to say that the cost of modern medicine is so high that, in order to cover their costs, insurance companies have to impose high premiums. This however, whilst a sound explanation, is too simplistic an answer.

The principle underlying any insurance is not that it should meet normal expenditure but that it should meet unexpected expenditure which a person would not normally be able to meet, or would have great difficulty in meeting, without insurance. In the normal course of events we would all hope that this is never going to happen to us and so would expect to pay for insurance year after year without ever getting anything back.

For example, I'm sure that many people reading this will have driven for many years without ever encountering an accident and will have paid thousands of dollars in motor insurance. At the same time, others will have been involved in a motor accident which has resulted in their insurer paying out a sum of money which, had they had to pay it themselves, would literally have forced them into bankruptcy.

It is the simple fact that hundreds of motorists will pay their premiums every year without seeing a return that enables an insurance company to accumulate a pool of money to pay those claims for the minority of motorists who are unfortunate enough to need to claim.

So, what has all this got to do with the cost of health insurance? Well, unfortunately, history shows that, unlike many other forms of insurance, many people have a tendency to buy health insurance only when they are unhealthy, or suspect that they may developing health problems, and are anticipating large or growing medical bills. This results in a high level of claims relative to the number of people insured and presents the insurance companies with a host of problems when it comes to trying to pool sufficient funds to meet claims.

This is the main reason why most insurance companies require that individuals are screened before granting them a health insurance plan and why cover for an individual might be restricted, or even excluded, for certain conditions.

Another problem that the insurance companies face is that many people would think twice about making use of medical facilities and take better care of themselves if they had to pay their own medical bills. However, when their insurance company is picking up the bill, or at least a substantial part of it, they tend not too worry and, if anything, overuse medical care.

One solution to this problem was thought to be a move away from the traditional indemnity (fee-for-service) health insurance plan towards a process of managed care with the introduction of Health Management Organizations (HMOs). This however created a host of problems and left people stuck with the option of traditional insurance which they couldn't afford or insurance through an HMO which they didn't like. As a result, today we see a mix of the two systems with the arrival of Preferred Provider Organizations (PPOs) and perhaps this will offer a solution, at least in part, to the problem of the overly expensive health insurance plan.