Tuesday, June 6, 2017

Redistribution, Not Insurance

I can always find someone
To say they sympathize
If I wear my heart out on my sleeve
--Billy Joel

Prof Galles explains why state sponsored health insurance is not insurance at all. It is simply a program of redistribution.

Insurance, he notes, is about reducing risk in the face of uncertain events. Insuring things that would happen for certain, such as routine checkups in a doctor's office, offers no risk reduction. Yet coverage for such events is required under most state sponsored health plans.

Stated differently, regular health maintenance does not fall within the proper scope of health insurance policies. When healthcare resources are drawn from an insurance pool to service routine needs, the insurance is not reducing risk to society at large. Instead, costs are likely to increase as there are no added benefits to outweigh the added cost of insurance administration.

Risk reduction is also difficult because of the fact that healthcare services covered by insurance induces over-consumption. When most health care costs are borne by third parties, then those covered by those insurance policies will want more and better services causing them to consume far more resources than they would have if they paid out their own pocket. This is the essence of moral hazard.

As Galles observes, this is why 'lunch insurance' doesn't exist. If someone else is paying your bill, then you will be prone to order more extravagantly than you would otherwise.

There is also the problem of mandating coverage for services that some people would never pay for out-of-pocket. For example, people certain that they would not need them would not ask for a quote for birth control or addiction service coverage. Yet, state sponsored health insurance programs are full of such mandates.

Mandates that require coverage of those more likely to get sick, such as old people or those with pre-existing conditions, clearly demonstrate that state sponsored health care is not about risk reduction. Rather than pooling those with similar circumstances, state sponsored plans force healthy people into plans. Consequently, policy pricing cannot reflect actuarial risks as healthy people pay less and sick people more than they would otherwise. Healthy people are thus forced to subsidize the sick.

All of this has been compounded by government misinformation that has masked massive income redistribution as programs for overcoming insurance market failures and reducing heartless harm on the sick. Honesty is, of course, impossible when trying to promote state sponsored health care.

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