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> We're going down some kind of bizarre path. Insurance is ultimately about risk sharing. If every risk is modeled then there is no insurance, just expensive p

> We're going down some kind of bizarre path. Insurance is ultimately about risk sharing. If every risk is modeled then there is no insurance, just expensive prepayment. This is completely backwards. Insurance is about risk smoothing, across states of the world. Insurance should not have a positive expected value - that is, there should be no person for whom the total lifetime expected payouts exceed the total lifetime expected costs. For a number of reasons, health insurance isn't actually insurance, and this is one of them. You can identify individuals who are dramatically likely to receive more money in payouts and benefits than they are to pay in their regular premiums, which means you're talking about a redistribution system, not an insurance system.

wool_gather 8y ago
I think the point parent is making is that there's (nominally/supposed to be) smoothing across people too. The uncharitable description is that "healthy people are subsidizing sick people". Part of the reason we accept this is that each individual doesn't know whether she will get sick. She pays the premium, not because she knows she'll need it, but because she knows not having it is worse, if she gets sick. But the insurance also has price proportionate to the chance she will need it. The more finely the chance it'll be needeed is known, the more closely individual prices will match the probability, and thus less smoothing will take place.
- chimeracoder 8y ago
  > I think the point parent is making is that there's (nominally/supposed to be) smoothing across people too. The uncharitable description is that "healthy people are subsidizing sick people" That's a common refrain, but it's wrong and misleading. It's why people talk about young and healthy people being "necessary" to balance out the costs of the older and sick under the ACA. That's describing a redistribution scheme, not insurance. > But the insurance also has price proportionate to the chance she will need it. No, they don't. They price based on age, sex, zipcode, income, and smoking status. That's only very loosely related to the chance that she will need it. It's nowhere near enough to provide precise pricing. > The more finely the chance it'll be needeed is known, the more closely individual prices will match the probability, and thus less smoothing will take place. No, that's another common misconception. The price is not determined by the ability of the insurer to predict the probability of the risk; that's what determines the insurer's profit margins. Under a free insurance market, the price is determined by the relative demand and supply of patients and insurers.

wool_gather 8y ago

I think the point parent is making is that there's (nominally/supposed to be) smoothing across people too. The uncharitable description is that "healthy people are subsidizing sick people". Part of the reason we accept this is that each individual doesn't know whether she will get sick. She pays the premium, not because she knows she'll need it, but because she knows not having it is worse, if she gets sick. But the insurance also has price proportionate to the chance she will need it. The more finely the chance it'll be needeed is known, the more closely individual prices will match the probability, and thus less smoothing will take place.

chimeracoder 8y ago
> I think the point parent is making is that there's (nominally/supposed to be) smoothing across people too. The uncharitable description is that "healthy people are subsidizing sick people" That's a common refrain, but it's wrong and misleading. It's why people talk about young and healthy people being "necessary" to balance out the costs of the older and sick under the ACA. That's describing a redistribution scheme, not insurance. > But the insurance also has price proportionate to the chance she will need it. No, they don't. They price based on age, sex, zipcode, income, and smoking status. That's only very loosely related to the chance that she will need it. It's nowhere near enough to provide precise pricing. > The more finely the chance it'll be needeed is known, the more closely individual prices will match the probability, and thus less smoothing will take place. No, that's another common misconception. The price is not determined by the ability of the insurer to predict the probability of the risk; that's what determines the insurer's profit margins. Under a free insurance market, the price is determined by the relative demand and supply of patients and insurers.