The example is a little bit exaggerated, but basically if you have a major medical problem with huge bills, the insurance companies will look for a ways to get out of paying. It may not be right or even legal, but the process of disputing claims is a confusing hassle. I can tell you from personal experience that it takes a lot of determination to dispute with an insurance company and I can imagine a lot of people just give up.
This is just a random link describing one scenario - http://www.yourwisconsininjurylawyers.com/library/claim-deni...