A common answer might be, “because health care costs a lot!” However, as we learn below, blindly applying that criterion is actually accelerating health costs! Let’s look deeper…
1. The fundamentals of why we want insurance are uncertainty and cost.
Uncertainty means we can’t be sure of if and when we’ll get sick. Cost is how expensive it will be. We really only need insurance if both of these factors are in play. Monthly rent? Expensive, but aggravatingly predictable. Common cold? Uncertain, but pretty cheap. Insurance is best for cancer- hard to predict and very expensive.
2. Sure, but I don’t like paying for stuff! Why not just throw it all in?
Insurance mandates are like barnacles, hard to get rid of and known to create drag! Adding services into insurance that don’t satisfy both uncertainty and cost properties increases prices in two ways. First, people care less about health care prices when insurance is footing much of the bill. This is called moral hazard. Unfortunately, health care pricers understand this too; prices rise, out-of-pocket expenses increase, and we’re in an endless upward cycle. Secondly, this moves services out of competitive markets (i.e., nice price competition keeping prices low) into the highly concentrated health care markets (i.e., hello monopoly pricing!).
3. A side note on why health insurance may be a different beast.
Compared to its colleagues of auto and home insurance, the timeframe of cost and uncertainty of health insurance may differ. We can replace our car with a more reliable one or move out of a fixer-upper, but “vehicle” choice is sadly not an option in health! Are we interested in insurance for this year’s uncertainty (a car accident)? Or over a lifetime (mid-life cancer diagnosis)? Current health insurance markets focus on short-term, but a better contract might be for decades of coverage.
Read the full discussion here. Or ponder the fundamentals of uncertainty and insurance in this video.
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