Vulnerability and Health Insurance

When costs rise, businesses have three choices: raise the price of what they sell, find ways to improve productivity to lower input costs, or reduce the quantity/quality of what they sell, keeping prices the same.?

For purposes of this discussion, I want to focus on the last option.? In the wake of the pandemic, we’ve all witnessed it in our everyday lives.? Quarts of orange juice have become 30 ounces as the bags of corn flakes inside our cereal boxes have become less full.? We’ve even come up with a term to describe it: “shrinkflation.”? It is what consumer products companies do to keep prices from rising while at the same time boosting the cost of what we buy.

In the context of our supermarket experience, it is annoying and frustrating. ?While in some cases, we can choose to move to house brands to mitigate its impact, in most instances, we face an unsatisfying choice: suck it up or do without.? If you want to understand why inflation was the number one factor in the 2024 U.S. Presidential Election, the answer lies in that that unsatisfying choice and its message to consumers: You are powerless.? Pay up or do without.

While I am going to move on to address another example, I want you to hold onto the feeling of powerlessness and vulnerability Americans, especially lower-income Americans, now feel due to inflation.? As you’ll see that backdrop matters.

Now, though, I want to discuss the impact of inflation on services, rather than goods.? While we don’t like it, with goods, we can see “shrinkflation.”? Yes, it may be masked inside a cardboard box (and fool us once), but the physical quantity reduction is clear.? With services, though, it is rarely if ever clear to us unless we are an expert in that service or until a specific element of the service we have bought matters to us, and we notice it is being delivered in a lower quantity or quality.

I don’t know about you, but my cable company has become a master of “services shrinkflation.”? Every year, the number of channels in the “standard package” gets smaller and smaller.? With that, I must, once again either pay up or do without.

To be fair, the cable industry is hardly alone.? If you’ve bought a plane ticket recently, you’ve experienced “pay up or do without” services shrinkflation first-hand.? While the price of a ticket may not have risen, the true cost of air travel has.

In the context of most services shrinkflation – or what many now simply call “shitification,” we face an explicit choice to either pay up or do without.? Moreover, we typically confront that option before our experience.? We can choose whether to pay for ESPN ahead of Saturday’s game or not.

This brings me to health insurance.? If there is an industry where shrinkflation and shitification have collided to keep list prices down, it is here.? From higher deductibles to reductions in coverage, the industry has responded to soaring medical costs by reducing the quality and quantity of what it covers.? Moreover, it has done so in ways that are all but incomprehensible, if not unknowable, to the consumer until, often, it is a matter of life or death.

Put simply, when Americans buy health insurance today, they don’t know what will be in the cereal box when it is time for breakfast.? Will it be full?? Will it be empty?? And that is breakfast today.? Tomorrow, when they sit down again, they will have the same uncertainty.

And therein lies the rub.? When it comes to health insurance coverage today, Americans feel intensely powerless and uncertain.? Not only is the list price viewed to be prohibitive, but the benefits are unknown and won’t be known until it is potentially too late.

Moreover, this is on top of the vulnerability many already feel because of inflation more broadly that I discussed earlier.?? When it comes to uncertainty and powerlessness today, many already feel the intense weight of “stacked vulnerabilities.”

And this is for those who are healthy.? Just imagine how all these feelings of uncertainty and powerlessness get compounded when we, or a loved one, get sick.

In March 2020, I wrote about the K-Shaped Recovery I saw coming out of the pandemic.? Over the four years since, it has evolved into a K-Shaped Economy where those at the bottom now experience stacked vulnerabilities while those at the top experience stacked confidence.? Moreover, as those at the bottom experience intense feelings of powerlessness and uncertainty they see those at the top with all the power and certainty they lack and then some.

Whether you are a business leader, a policymaker, or a concerned citizen, I encourage you to appreciate that America’s greatest divide today isn’t left to right but up and down.? More than ever, and in whatever you do, please consider the impact on the feelings of certainty and control of others.? The more we reduce feelings of powerlessness and uncertainty – lowering the stress of stacked vulnerabilities – the better off we will all be.

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Peter Atwater is the author of "The Confidence Map: Charting a Path from Chaos to Clarity" His book explores the unappreciated impact of our feelings of certainty and control on what we do.?