> Insurance carriers set their rates based on actuarial models designed to predict the likelihood of future events.
Sure, until the government says that you are no longer allowed to set rates based on actuarial data; maybe you aren't allowed to charge people appropriately if they have some expensive "pre-existing condition", or because of certain "protected" but statistically relevant characteristics. This throws a big fat spanner into the whole expectation value thing, because you're no longer an insurance company but a weird privatized subsidy pool that isn't allowed to make expectimax decisions anymore.
Your clients aren't allowed to expectimax anymore either; if they catch on to the fact that they're actually subsidizing someone else, they're not allowed to form their own rational insurance pool (because it would violate restrictions on "discrimination", e.g. ACA section 1557) and if they choose to opt out of the irrational "insurance"/subsidy market you hit them with a hefty fine.
I encourage everyone to look up expectation values for payin/payout of medical insurance for different customer types under current regulations (start with https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1361028/ ). TL;DR If you're a reasonably healthy man below retirement age, you're getting screwed hard. Maybe society can collectively agree that this is a good idea, but we should at least be honest and stop referring to it as "insurance". Actual insurance markets without coercion are a net positive for all participants, rather than a convoluted scheme to (effectively) transfer money from one demographic to another.
These points are relevant to health insurance, but in the second footnote of the article, he explicitly states that he is talking about property and casualty insurance.
In a pure sense, what we call health insurance isn't really pure insurance. To give a simple example, in property insurance, I pay let's say 2% of the cost of the item per year to protect something that the insurance companies deem to have a 1.5% chance of getting destroyed. That 0.5% difference is their expected margin.
But in the case of health insurance, I get that coverage for catastrophic events, but I also get discounts on healthcare for being on a plan. Insurance companies negotiate better rates with providers, which makes the market vastly more complex.
So that's why the author of this post says explicitly that he's not talking about health insurance.
Typically premiums are equal to or less than the expected payout for a given policy. Insurance companies make most of their profit off of the float (return on investments made with premiums as the principal).
Health insurance really ought to be separated from a health plan which covers entirely predictable and expected expenses.
Car and homeowner's insurance only works /because/ insurers have imperfect data /and/ because purchasing it is mandatory in most cases (eg: auto liability is mandated by the government and homeowner's policies are mandated by banks lending against the purchase of a home).
If you had perfect actuarial data it would mean you would charge predicted "losers" the entire cost of their expected claims plus your costs and profit. Conversely you'd charge the expected "winners" almost nothing because their premiums are pure profit. Insurance requires large risk pools to function as insurance. The entire point of it is that everyone in a large group pays in to cover those who suffer a loss.
For healthcare (which is not what this article is about) that means collecting premiums from younger, healthier people to cover older sicker people. Healthcare is also the only kind of insurance where everyone is guaranteed to make claims - very much the opposite of most other kinds of insurance.
The last point I'll make is that everyone gets older eventually. Higher premiums when you're younger are a form of pre-payment for the care that will absolutely be required when you age. Unless the government forces people to pay these premiums the most rational thing for any individual actor to do is cheat and skip paying premiums when young, then force the cost on others by buying in when you're old. It becomes a classic tragedy of the commons situation where only sick people buy policies, resulting in massive losses and sky-high premiums no one can afford to pay.
Your argument basically boils down to "fuck other people" + "I'll never get old, I'm going to be young and healthy forever!". I don't want to live in that world.
As a practical matter I'd also like to make it easier for people to start new businesses so I favor universal baseline healthcare coverage paid for by taxes. Shrinking hospital billing departments, insurance companies, and bill collectors would be a net win for our economy. I don't know why everyone believes scaling up drives efficiency for a startup, yet requiring every individual doctor to employ a bill collector is somehow a net win.
Car and homeowner's insurance only works /because/ insurers have imperfect data /and/ because purchasing it is mandatory in most cases
This is not true and represents a misunderstanding of the purpose of insurance. Insurance exists to protect against large downside risks.
There is, let's say, a 1% chance that my apartment burns down next year and I lose $50,000 worth of stuff. I would much rather pay $500 to insure against this loss than run the risk. I can easily afford to pay the small insurance premium whether there is a fire or not, but a fire would put a very serious strain on my finances that I am very happy to avoid.
> Car and homeowner's insurance only works /because/ insurers have imperfect data
No, this is wrong. Common misunderstanding about the value of insurance. Even with perfect data, where your cash EV from buying into the insurance pool is guaranteed slightly negative, it's still (usually) a positive utility EV. Losing $100,000 is, for most people, much more than 100 times worse than paying $1,000. So if your $100k house has exactly a 1% chance of burning down, you're happy to pay $1000+ for fire insurance.
Ah, of course, forcing young people, typically with less money, to subsidize older people, typically with more money, is very charitable to you. Are you incapable of telling the difference between "fuck other people" and "don't steal"?
People should pay in according to their expected costs. Anything else amounts to intentionally transferring money from healthy people to unhealthy people. It's true that healthcare gets more expensive as you get older, so if you want to burn $5M keeping yourself alive another 5 years in the geriatric ward, you should be the one to bear that burden, not everyone else. Guaranteed external subsidies + rapidly diminishing returns = horrendously inneficient allocation of resources.
I agree, businesses and doctors shouldn't have to deal with insurance bullshit, so I'm not sure why your proposed solution is to keep the same irrational overregulated "insurance" scheme we have now, which inherently requires a bureaucracy to A) force insurance companies and their customers to comply with imposed pricing rules and B) attempt to prevent people from taking advantage of the obvious economic discrepancies caused by (A).
> The last point I'll make is that everyone gets older eventually. Higher premiums when you're younger are a form of pre-payment for the care that will absolutely be required when you age. Unless the government forces people to pay these premiums the most rational thing for any individual actor to do is cheat and skip paying premiums when young, then force the cost on others by buying in when you're old. It becomes a classic tragedy of the commons situation where only sick people buy policies, resulting in massive losses and sky-high premiums no one can afford to pay.
This is not true. People die young, some die quickly when older, with few health costs, others linger with huge costs. I can see an appropriate insurance product that protects against the risk of those varying outcomes.
> I can see an appropriate insurance product that protects against the risk of those varying outcomes.
I can also see millions of people unable to access that insurance product because their health condition or expected health condition makes it impossible for them to obtain insurance at an affordable level.
Of all the places for hardline libertarians to make a stand, the actuarial fairness of the insurance market, which literally is redistribution to the less fortunate which ultimately relies on coercion to function (good luck handling claims in a world where a legal system doesn't have teeth) seems the strangest place.
I'd rather not "contribute to society" by having my money taken from me at every conceivable opportunity. I'd rather that everyone in society contribute more or less equally (or, at least, according to their means and nothing else), which is currently not even remotely the case.
> How do you have a coercion-free market when the consequences of not buying in can include "you'll die or be bankrupt"?
This is such a silly argument. Are any changes in your utility function "coercion"? Is the fact that you have to eat food "coercion"?
Coercion-free means that you're free to behave rationally and make decisions that optimize your utility. It doesn't mean that nothing bad will ever happen. I'm really not sure how people get from the former to the latter.
If you're worried about having a heart attack, you should be able to buy an insurance vehicle that charges you commensurately with the risk of that happening. (Unfortunately, you can't; you also have to pay for other people's quadruple-bypasses, geriatric medicine, and 8th child.)
I am seriously tired of being seen as nothing more than a bag of blood for society to suck on and then come and insult me by emplying I haven't contributed enough.
Dammit I don't mind paying a fair amount of tax to make society work, but when they also choose to insult me because I haven't contributed enough and then waste what I have contributed.
We contribute more in tax on a raw-numbers level because we've historically benefited more on a raw-numbers level too.
We pay the same health insurance rates as everyone else. If you consider that an insult and a waste, I'm not sure how to constructively discuss this with you.
When you say "we've historically benefitted", what do you mean? Surely you can't be referring to me, because I wasn't around "historically".
> We pay the same health insurance rates as everyone else.
Did you miss everything I said? If it's a flat rate, it's not insurance. It's a mandatory subsidy pool.
And yes, it is an insult and a waste; certain groups are systematically forced to give up the results of their labor for the benefit of other groups. Besides obviously subverting useful market-based societal optimization mechanisms, it's also very similar to certain social institutions we sought to eliminate a while back...
> You say "screwed", I say "contributing to society".
How is a coercively collected subsidy for the health expenses of other demographics considered a contribution to society? Is trading one's labour for capital not enough?
> I can't really choose whether or not I get psoriasis or have a heart attack.
There are plenty of places throughout the United States where the only viable means of transportation is the automobile (or a motorcycle, as you point out). The consequences of not having auto insurance is also bankruptcy. Would you characterize the auto insurance market in those locales as similarly coercive?
No? I believe folks in a modern, developed-world society have slightly more obligation to their fellow citizens than that. Some people can't labor, so we have things like SCHIP (kids), SSDI (disabled), etc.
> Would you characterize the auto insurance market in those locales as similarly coercive?
The US focus on private cars is problematic, but the choice to move somewhere with better public transport or closer to a job is generally available (if potentially difficult).
No? Capital is absolutely meaningless in a society. Capital doesn't give society anything. Actual, physical goods do, services do, a healthy population that protects us through the herd effect do. Capital in itself? It is on the brink of being nefarious for society.
>There are plenty of places throughout the United States where the only viable means of transportation is the automobile (or a motorcycle, as you point out). The consequences of not having auto insurance is also bankruptcy. Would you characterize the auto insurance market in those locales as similarly coercive?
Aside from the fact that you will rarely suddenly end up in such a place without warning (which cannot be said when it comes to health), I would say that it's a problem of society. Why is there no public transport that could do most of the job of your car?
As far as I know, there is no strong relationship between race and lifetime insurance expenditures. Hypothetically though, yes, insurance companies should be allowed to make optimal decisions based on full actuarial information. Anything else, besides being sub-optimal and confounding the effectiveness of market mechanisms, would amount to the effective intentional transfer of wealth based on race, which is morally much worse than rational actuarial pricing that incidentally involves race as a predictor.
That doesn't mean it makes sense to charge different premiums.
Insurance only works if the group is large and shares the risk. If you break it down on race, gender, age, and the thousands of other physical characteristics that correlate to something medically, you wind up with groups too small for insurance to work.
We don't charge black people lower Social Security and Medicare taxes on account of their lower life expectancy, right?
> you wind up with groups too small for insurance to work.
This is quite simply not true, and I can't help but think that this statement comes from a very fractured rule-of-thumb understanding about how insurance works.
Insurance works by charging you around (naively slightly more than, but actually usually slightly less than) your expected cost to the insurance pool. It doesn't matter if different pool members have different costs; as long as you charge them appropriately, insurance continues to work fine. Why do you think that charging different amounts to different customers would require splitting the pool?
You set the premiums based on the expected risk of an event happening, for any type of actual insurance at all. "Actual insurance" is supposed to be a financial product that people purchase to mitigate financial risks of some future event that may or may not happen. If the bad thing happens, you make a claim and the insurance company pays you a lot of money. This system works most things because most people don't make claims.
What we call "health insurance" in America has gotten away from this model and that's one of the reasons why it is expensive and was horribly broken before 2009. Trying to cram everyone into one giant pool and charge them all the same amount of money in the hopes that the pool will be big enough is not working either, and doesn't solve the underlying problem with that system, which is that people make claims all the time and the insurance company often must pay. Thus, it becomes the customer and the entire transaction is less about serving the patient and more about milking the insurance company for every penny.
> We don't charge black people lower Social Security and Medicare taxes on account of their lower life expectancy, right?
Taxes aren't insurance premiums and those programs don't function as actual insurance; they're "social insurance" e.g. The federal government definitely makes payments to everyone who qualifies, no matter what happens to them. And taxes used to fund the program get spent on everything the government does, not just to fund those programs. So, this really isn't relevant to the question of what an insurance company should be doing.
Sure, until the government says that you are no longer allowed to set rates based on actuarial data; maybe you aren't allowed to charge people appropriately if they have some expensive "pre-existing condition", or because of certain "protected" but statistically relevant characteristics. This throws a big fat spanner into the whole expectation value thing, because you're no longer an insurance company but a weird privatized subsidy pool that isn't allowed to make expectimax decisions anymore.
Your clients aren't allowed to expectimax anymore either; if they catch on to the fact that they're actually subsidizing someone else, they're not allowed to form their own rational insurance pool (because it would violate restrictions on "discrimination", e.g. ACA section 1557) and if they choose to opt out of the irrational "insurance"/subsidy market you hit them with a hefty fine.
I encourage everyone to look up expectation values for payin/payout of medical insurance for different customer types under current regulations (start with https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1361028/ ). TL;DR If you're a reasonably healthy man below retirement age, you're getting screwed hard. Maybe society can collectively agree that this is a good idea, but we should at least be honest and stop referring to it as "insurance". Actual insurance markets without coercion are a net positive for all participants, rather than a convoluted scheme to (effectively) transfer money from one demographic to another.