May 03, 2011
I’ve finally figured out what insurance is, aside from an elusive concept that everyone talks about and knows they need.
Ready? Here it is:
Insurance is the act of taking an inherent risk for a population and spreading the probability of that risk over the population to distribute the cost evenly.
That’s it. It’s actually pretty simple.
This means that two things matter to make it cheaper: increasing the population you spread the cost over and reducing the cost of the risk. If you can do those two things, insurance will be remarkably cheap (profit margins aside).
Ironically, as far as healthcare is concerned, this means that government ought to be the best possible solution. It has the largest population to dilute costs: the entire citizenship. It is also uniquely incentivized to reduce the average cost of healthcare: it means more healthy taxpaying citizens. And lastly, government is inherently non-profit, so the profit margin of insurance companies is gone.
You can see where the draw of public health insurance comes from. It’s unfortunate that so many citizens distrust the nature of bureaucracy and taxes so much that we can’t even enter into a proper discussion about what public insurance might be. Instead, we spread the cost unevenly through private insurance while the law mandates and subsidizes that anyone entering a hospital ER must be cared for.
We’re missing the point as usual. Since I’m not enthused at all about Obamacare, but I’m generally pro public insurance, I just wanted to point out the difference on a fundamental level.