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0 pointsbarrkel8y ago0 comments

The reason you must get car insurance isn't to cover the cost of the car, it's to cover the very high variance in potential payouts to third parties should you cause an accident.

Health insurance in principle works on a similar basis: it's a cost smoothing mechanism for unexpected large costs that not everyone is expected to incur.

It breaks down if everyone incurs the big costs (old age) or not everyone insures (only at risk people insure, which increases costs, which pushes out people who aren't as risky, which pushes up the price further, in a cycle.) It also doesn't make much sense for regular care that doesn't directly prevent major payouts.

So it seems to me that health insurance is only workable if it is mandatory, old age spending is rationed, and checkups that find things that can become very expensive are covered, but other bits and bobs aren't. Obviously gold plated coverage could cover more, but that's all the mandatory insurance should cover.

It's all far too politically charged for any kind of rationality to prevail though. I think single payer state care can work, but it has high overhead and suits high tax countries better, not the US, where there is less acceptance of the social contract of taxation.

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logfromblammo8y ago

GP was referring to the car insurance, not the driver insurance.

Those are separable concepts. If your rear-view mirror is broken off by a punk with a baseball bat while parked on a Chicago street, that is property damage to your car that would be covered by your car insurance. If you t-bone another car, the damage to their vehicle is covered by your driver insurance, while the damage to your own vehicle might be covered by your car insurance, if that possibility is listed in the policy. Generally speaking, if your car insurance doesn't pay for damages incurred by the owner while driving, you-as-car-owner can't file a claim against you-as-car-driver under the driver insurance policy, and end up getting any money out of it.

When the policies are offered by the same insurance company, the actuaries for each can share information, such that the risk of owner-caused damages can be assessed for the car policy, and can therefore be rolled into its premiums. This is why those policies are often combined.

Where states mandate insurance, the mandate is always for driver insurance. So the car insurance then becomes an upsell option for those who already have to buy something from an insurance company.

With health insurance, there is the one big problem that you just can't get around. Everybody dies, eventually. You can sort of predict when and how in a large enough population, but everyone has a very high, statistically predictable likelihood of needing medical care at some time during their lifespan. There is also another big problem. Most people incur their highest medical costs in the year before their death. Obviously, after you die, you can't work off your medical debts.

That's not a good looking model for healthcare providers, and a tough one for healthcare insurance actuaries to squeeze profitable premiums out of. There is a perverse incentive to drop a client or raise their premiums right after a claim is paid, on the presumption that any uptick in medical payments might be a harbinger of greater future medical expenses. There is also perverse incentive to drop customers immediately after the first payment related to chronic disease is made. We paid for an office visit to an oncology specialist and for biopsy lab tests, so our model says that we should drop you right now before your lab results come back. We hope you don't have cancer, so you can prove it before coming back to us as a customer, but otherwise, good luck with your treatment bills....

barrkelOP8y ago

Health insurance is like driver insurance, not car insurance.

Health costs are borne by the community in A&E if people don't pay for it themselves. That's why a mandate is fair from a social contract perspective. Some people might prefer a state that leaves poor people to die on the side of the road after an accident, but not the majority.

(FWIW, in the UK, driver insurance is attached to the car (or possibly multiple cars) and is described as car insurance colloquially. Car insurance may or may not include property insurance, at two levels: damage you're not responsible for (fire and theft), or damage that you are (an accident you caused).)

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