Insurance companies negotiate much lower payment amounts with providers than individuals could achieve otherwise. They do this through scale, which, as you ment

Insurance companies negotiate much lower payment amounts with providers than individuals could achieve otherwise. They do this through scale, which, as you mention, can be bad when scale gets too big, but also through risk pooling. Risk pooling allows you to eliminate idiosyncratic risk and thus lower the cost of healthcare on average. If you are a sick person with no insurance and average income, you won't be able to afford health care. But if you join a group of healthy people and pool some to pay for emergencies, you can. That's health insurance