I know it is wrong of me to say, but I propose that we do not want universal insurance.

No, this is not a repeat of my post "My Health Care Plan", arguing that to get universal insurance we would have to destroy the medical profession. My point is, even if there were a free market way to get universal insurance, I think it would be a bad idea. And part of teh reason is that medical insurance really is not insurance, not in any meaningful sense.

Well, it is partly insurance, and partly not. And the part that is not is one of the very real reasons costs are rising so swiftly. I dealt with this in my post "High Cost of Medical Care", but let me try a different approach.

Car insurance is, generally, real insurance. It covers you for any damages you inflict on others in an accident, and in the case of comprehensive insurance, it covers your repairs as well. But, how does it work? What is the idea behind insurance?

I explained this before in "Social Security is Not Insurance", but let me go over it once again. Insurance is simply a precaution against misfortune. You hope X never happens, but since it would be costly if it did, you pay a small premium so that, should X happen, you will have enough money to handle it.

The finances behind it are simple. You are willing to pay premiums because the present value of those premiums is less than the risk-adjusted cost of  the event. In layman's terms, if there is a 1% chance of event X, which would cost you $1 million, then the risk-adjusted cost is $10,000. So, if you took the premiums and invested them and would make less than $10,000, then those premiums are a good deal for you.

And on the insurer's side it makes sense because they know the risks very well, and also know the likely return on investment. By balancing those they expect that they will see more investment revenues than they will pay out in settlements.

But there is one other factor which keeps insurance working. The events against which we are insured are undesirable. You do not want to be in an accident. You do not want your house to burn down. Even if you have money coming to you should the worst happen, the assumption is that the money is not enough to encourage you to make the worst happen. And so, you will not cause an insurance claim to be filed intentionally, it is simply indemnification against an unwanted event.

However, what if auto insurance began to cover oil changes? What would happen then?

Well, that would break our model. Since you don't want to avoid an oil change, you would be perfectly happy to pay a monthly fee to get all the "free" oil changes you want, provided it was less than you would spend on oil changes. And that is where the problem lies. The insurer can no longer do effective risk pooling, as they now have customers who will cause the event themselves. And so now, they must charge a premium pretty much equal to the cost of the oil change, and impose restrictions on how many can take place. In other words, from the perspective of the insurer, they have to charge about the same as they pay out, which means you save nothing. In fact, with overhead, you probably lose, but as it is bundled with the rest of your insurance, you don't notice.

And that is part of the problem with modern medical insurance. Since legislatures began mandating that it cover "preventative medicine" such as checkups, patients no longer are like auto insurance customers, they have a service of which they can avail themselves without cost, or so they think. Of course the truth is, they are paying just as much or more in premiums as they would if they paid out of pocket, but it is concealed by employer contributions and being bundled with care for undesired medical conditions.

However there is one big difference, if they paid out of pocket, they would shop around and compare prices, which would help drive down costs. Since they do not realize they are paying, because it is concealed by insurance, they do not comparison shop, and there is nothing to encourage providers to compete on prices.

And that is why I think universal insurance would be so disastrous. Instead of more insurance, we should really be fighting for less. If people could negotiate for insurance they wanted, instead of what was demanded by legislatures, they could pay a small amount for catastrophic illness overage, pay out fo pocket for normal care and prescriptions, and probably save money, while also increasing pressure for competitive prices. That would cause medicine to improve.

Instead, seeing how the government has made medicine more costly, people seem strangely willing to let them have even more say, imagining more government will somehow cause prices to drop, despite all evidence to the contrary.

POSTSCRIPT

I have written a lot about medical care recently. The most significant posts are  "Government Efficiency", "High Cost of Medical Care", "The Problem With Tort Reform", "Clarification of My Argument for a Free Market in Medicine", "Cutting "Costs"", "Misunderstanding Profits", "Contradiction",  "AARP Proves They Are Partisan Hacks and other Thoughts on Health Care Reform", "Can Anyone Make Sense of This?", "Envy And Analogy", "Confirmation, Yet Again", "Red Herring", "Who Will Decide" and "My Health Care Plan".

POSTSCRIPT II

I know from a strict financial accounting standpoint I oversimplified and left out some details, for example, not adjusting the payment for the event to take into account the expected duration tot he event taking place, as well as not going into all the nuances of the NPV of an perpetual annuity and so on. Still, the basic concept is that the buyer expects the payments to be worth less at a given time than the risk adjusted payout at that same time, while the insurer expects the opposite, at least when viewing the entire pool of insured. And that is the model which insuring against desired or indifferent outcomes, and outcomes under the control of the insured (such as checkups) breaks. So, despite my simplification, the point is still valid.