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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 ma

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.

secabeen 9y ago
> 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.
- notahacker 9y ago
  > 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.
harryh 9y ago
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.
wbl 9y ago
Insurance works when people have risk aversion.
wyager 9y ago
> 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).

secabeen 9y ago

> 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.

notahacker 9y ago
> 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.

harryh 9y ago

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.

wbl 9y ago

Insurance works when people have risk aversion.

wyager 9y ago

> 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).