Should We Convert U.S. Health Insurance Into True Insurance?

William M. Briggs thinks that would be a great idea. He starts with this explanation:

Health Insurance should be, but isn’t, a bet you make that you hope you lose.

It has become instead an inefficient form of socialized medicine, increasing costs. Here’s how.

Here’s what insurance should be. You bet with an Insurer that you get cancer, say. If you get it, the Insurer pays costs of care X. If you lose and remain cancer free, you pay Y. You re-bet every month (or whatever). You pay Y every time you lose. The X and Y are negotiated between you and the Insurer, and the risk of cancer is decided by you and separately by the Insurer. That is the bare bones of true Insurance. Or, indeed, of any bet.

You can also group diseases, say cancer and CHF. Then you pay Y_1 + Y_2 (say) and the costs are X_1 + X_2. The result is a contract bet just the same. But with higher stakes for both.

Suppose you already have cancer and bet the Insurer you won’t get it. You immediately win the bet! The Insurer must pay X.

How much should the Insurer charge you for this sure-thing bet? X. After all, your “pre-existing condition” is a sure-thing bet the Insurer is bound to lose. There is no sense in you making the bet.

Unless a Ruler steps in and says “Insurer, you must take this bet!” Which, of course, happens. Then the Insurer must spread the costs of X to others.

If the Insurer doesn’t spread the costs, he has sure loss (assuming calibrate bets, about which more later). Which means if you bet you have cancer when you do, when your neighbor makes a bet for cancer when he doesn’t have it, he must pay Y+S, where S represents the spread. The more people in the system, the smaller S is.

Voilà! With coverage mandates Insurance automatically becomes socialized medicine. Very inefficient, too, because not only are we paying a private entity to manage this, and take his profits, we pay bureaucrats to monitor it all. Costs must increase. Health care won’t get better, but costs must rise. 

It’s worse than all this, too!

RTWT. I discuss the pros and cons of this approach in my new book below.

Steve Parker, M.D.

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