Insurance Gone Wrong

Those changing years
They add to your confusion
Oh and you need to hear
The time that told the truth
--Level 42

Article here reiterates a point these pages have made before. Healthcare markets have bastardized the concept of insurance. Insurance markets are supposed to be markets for risk management. Risk constitutes potential, not certain, loss.

Risk is not associated with routine expenses. Groceries, oil changes, utility bills are everyday costs that cannot be insured because there is no way to price policies to pool risk in a manner that does not simply transfer economic costs from one entity to another.

Similarly, many health care costs are not legitimately insurable as well. Regular doctor's visits, flu shots, maintenance drugs, etc constitute regular expenses that cannot be managed by risk pooling. Instead, insurance reimbursements for routine medical bills are simply subsidies being paid to one person by another person.

Unfortunately, subsidized markets lack competitive pressure for improvement. Thus, costs for most healthcare products and services rarely decline.

On the other hand, catastrophic medical occurrences like contracting cancer or treatment following a sudden heart attack are the types of events that insurance was designed to manage. Their low probability/high cost nature means that risk pools can be designed in a manner that health insurance programs can actually create economic value to individuals and society at large.

Unfortunately, combining legitimately insurable health care risks with those costs that should not be covered dilutes the true economic benefit of health insurance. It also obscures opportunities to truly reduce economic impact of risky health care events (through better insurance program design + improvements in treatment + reduction in catastrophic event occurrence) over time.