However, I thought it would be more interesting to have an open discussion on health insurance. I don’t pretend to be an expert, so please add your thoughts and/or tell me how wrong I am. Shorter posts encourage more reader discussion, so I’m splitting this into three bites:
Health insurance seems really complicated to me, and I’m amazed that so many people think they understand it. It’s basically an exchange of money, for money. It’s not at all obvious how this is beneficial, and yet it is. Below, I list some possible reasons why it might be beneficial.
- Risk management – When you buy any kind of insurance, you are basically buying risk reduction. On average, you lose money from buying insurance, but you lose it at a more predictable rate. Predictability has value to you, and you prefer it over the money. The insurance company, on the other hand, can handle unpredictability and would prefer to have the money. The exchange is mutually beneficial. Of course, then it’s a mystery why health insurance also covers regular checkups or regular prescriptions.
- Efficiency – Health insurance might somehow improve efficiency. For example, they might do the administrative work of connecting you with the right health care provider. Or they could encourage people to get regular checkups, which might be cheaper than waiting until people need to go to the emergency room.
- Bargaining power – Health insurance companies are few and large enough that supposedly they can lower the price of health care with their bargaining power. In effect, buying health insurance is like joining a union. However, this strikes me as a double-edged sword. If insurance companies have the bargaining power to lower health care prices, surely they also have the bargaining power to raise insurance prices.
- Redistribution of wealth – Maybe for some people health insurance actually isn’t worth it. They get health insurance as part of their job, but are in good enough health that they would have preferred a larger paycheck instead. Other people working for the same employer might be in poorer health, and thus prefer the health insurance over the larger paycheck. Requiring employers to provide health insurance effectively redistributes wealth from people with less medical costs to people with more. Another more direct way to redistribute wealth through healthcare is by paying for people’s healthcare, such as through Medicare or Medicaid.
Of these four benefits, which do you think are most important? Least important? Are there other benefits that I’ve missed?