What Health Insurance Should Be, But Isn’t – Commentary

Published January 13, 2025

By William M. Briggs

Now that a health insurance guy has been whacked by an assassin, it’s useful to review why health insurance is such a mess now.

Here is an expanded version of a thread I did on Twitter—which is all a repeat of (ignored) arguments I made back when Obamacare was being discussed.

Health insurance should be, but isn’t, a bet you make that you hope you will lose.

The Bet

Instead, health insurance has become an inefficient form of socialized medicine, increasing costs.

Here’s what insurance should be. You bet with an insurer that you will get cancer, say. If you get it, the insurer pays costs of care X. If you lose and remain cancer-free, you pay Y. You re-bet every month (or whatever). You pay Y every time you lose. The X and Y are negotiated between you and the insurer, and the risk of cancer is decided by you and separately by the insurer.

That is the bare bones of true insurance. Or, indeed, of any bet.

You can also group diseases, say cancer and congestive heart failure. Then you pay Y_1 + Y_2 (say) and the costs are X_1 + X_2. The result is a contract bet just the same. But with higher stakes for both.

 Suppose you already have cancer and bet the insurer you’ll get it. You immediately win the bet! The insurer must pay X. How much should the insurer charge you for this sure-thing bet? X. After all, your “preexisting condition” is a sure-thing bet the insurer is bound to lose, so he has to charge you the entire amount he is risking or he will take a loss. Under those terms, there is no sense in you making the bet.

Unless a ruler steps in and says, “Insurer, you must take this bet!” Which, of course, happens. Then the insurer must spread the cost of X to others.

The Spread

If the insurer doesn’t spread the costs, he has a sure loss. That means if you bet you have cancer when you do, when your neighbor makes a bet for cancer when he doesn’t have it, he must pay Y+S, where S represents the spread. The more people in the system, the smaller S is.

Voilà! With coverage mandates, insurance automatically becomes socialized medicine. It is very inefficient, too, because not only are we paying a private entity to manage this and take his profits, we also pay bureaucrats to monitor it all. Costs must increase. Health care won’t get better, but costs must rise.

Protection for Everything

In fact, it’s worse than all this!

It’s worse because people insist on having general coverage for an entire range of diseases without regard to whether they will get any of these diseases. To most, any risk is too large. Safety first!

Of course, the more diseases you add to the bet, the greater the probability you will “win” at least one.

This increases the Y you must bet, because, of course, you have increased the X the insurer might have to pay, which is now cumulative. And, of course, general coverage encourages people to “win” and claim their X by going to the doctor for sniffles, etc.

Add to that employer mandates, which require employers, because they are employers, to pay the Y for their employees because they are employees—thus creating a servile, slave-like caste. This point cannot be overemphasized. The system creates oligarchy.

These large additional costs must be spread by the insurer among the insured. Again, costs rise, medicine is socialized, and health care at best does not improve. It can get worse because too many patients choke the system.

A Losing Bet for All

This is all before insurer greed comes into the picture, which has the obvious effect of increasing Y for all. Again, health insurance costs rise, but health does not. In fact, mandates encourage insurers to deny claims because there is only so much spreading that can be done.

What needs to happen, but won’t, is the elimination of this form of bastardized insurance. If it were made a true bet again, and all had to pay for losing this bet (monthly or whatever), and for only a limited range of conditions (different per person), costs would decrease on average.

It is an entirely separate question whether it is more or less moral for medical care to be socialized, and to what extent.

Somebody reacted to the original thread by asking how you would “feel” if it was your relative who was denied “coverage” for some preexisting condition. That kind of unthinking reply is common. But it’s wrong. The correct way to put this is that your relative has been denied having his medical care paid for by others.

William Briggs ([email protected]) is a statistician. A version of this article appeared on the author’s Science is Not the Answer blog on December 5, 2024. Reprinted with permission.

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