by Gary M. Galles
For at least half a century (Medicare turned 50 last year), health insurance policies have been hotly debated. The most recent skirmish is over the Trump administration’s final rule expanding the availability of short-term, limited-coverage insurance. Single-payer and Obamacare stalwarts have attacked it tooth and nail. For instance, Los Angeles Times columnist David Lazarus asserted backers “have no clue how insurance works” because they “decided to skip class when the topic of insurance came up in Econ 101.”
Unfortunately, if accurately applying principles of insurance is the standard, both single-payer and Obamacare fans compare poorly to pots calling kettles black. Their preferred policies sharply conflict with insurance principles on multiple fronts.
Insurance is about reducing risk from uncertain events. It makes outcomes for a group with similar risks more predictable. But that must be weighed against the additional administrative and other costs of insurance. That would mean that people would not insure against what would happen for certain nor where there is only a small amount of risk reduction provided if they were spending their own money.
Insuring things which would occur with certainty, say certain inoculations and annual checkups, offers no risk reduction. It provides no added benefits to weigh against the added costs of insurance administration, yet government plans mandate such coverage. Similarly, small health care risks are cheaper to cover directly out of modest saving