3 ms·

How is perfect insurance different from everybody paying their own losses directly? If I correctly understand what you said, then perfect insurance would lead t

How is perfect insurance different from everybody paying their own losses directly? If I correctly understand what you said, then perfect insurance would lead to nobody buying it, so they could avoid paying the useless additional “small premium.”

virgilp 7y ago
It's basically "no insurance, plus a credit to pay for the losses". Except that you start paying the rate before you incur the loss itself. I still think this form of "perfect insurance" is bad - part of what I like about the insurance is exactly the dispersion of cost in the larger population. Should a chronically-ill person pay a very high insurance, or should the society cover the costs? I'm in the second camp, even though I'm not chronically-ill. It's part of the benefits of having an actual society - we don't need to stand alone.
- unpopular42 7y ago
  That is indeed part of what people call insurance these days, but in fact it isn't one. It's just a social solidarity scheme, and no one has the balls to call it that way, so it gets mingled into insurance. Without getting into whether it's good or bad, it's just not the true meaning of the term "insurance."
  - izacus 7y ago
    If "everyone" uses a word for something, then that is de facto the "true meaning" of a term.
    - torstenvl 7y ago
      No. Even for vernacular natural language, it only matters what native speakers think. Wéijī will never quite mean "danger and opportunity," no matter how many people view it that way, because native Mandarin speakers don't view it that way.
    - leetcrew 7y ago
      constantly having the prescriptivism vs descriptivism debate is tiresome and pedantic. what we call "health insurance" clearly works very differently than any other kind of insurance I'm familiar with. it's not wrong to try and maintain the distinction between two different concepts.
  - zAy0LfpBZLC8mAC 7y ago
    You are definitely not a scotsman.
- MagnumOpus 7y ago
  There is a benefit in separating the parts that are actually just insurance that replaces low-probabily low frequency costs with a predictable payment (and thus can be efficiently provided by competing capitalist companies) with the parts that are social redistribution schemes. The latter are necessarily the government's remit, and the political discussion on whether they are desirable can be had in an informed manner if costs are clear and they are not commingled with insurance elements.
- leetcrew 7y ago
  healthcare is a bad fit for the concept of insurance. an obvious example is that people use their "insurance" to pay for routine doctors appointments which have highly predictable costs and are scheduled in advance. the chronically ill person in your example enrolls in insurance knowing upfront they will never pay enough in premiums to cover their claims. what we call "health insurance" is really just a payment planning and collective bargaining service rolled into one. it doesn't really work like most other kinds of insurance.
stult 7y ago
You never have to pay a large lump sum. So it’s similar to having savings and always covering your own losses. But with the added benefits of covering you even if you have not had time to save sufficiently to cover your losses (or lack the discipline to do so), or are unlucky and suffer multiple large losses in closer proximity than your savings and income can absorb.
unpopular42 7y ago
It's not useless. You pay premium for the privilege of never having to pay catastrophically large amounts. And that's exactly the difference and the point of insurance: limiting the maximum loss.
- jtbayly 7y ago
  The perfect insurance would know that I was going to have to pay catastrophically large amount and would therefore charge me a catastrophically large amount.
  - mannykannot 7y ago
    There is a difference between estimating a risk with exactitude and predicting with exactitude that an event will or will not happen. Suppose we can accurately say that I have an annual risk of a certain event happening to me as 1/1000 - this is neither a prediction that it will happen to me nor that it will not. If we form an insurance pool of 1000 people all with the same risk, and we each annually put in 1/1000 of the cost of the event to one person, we would have coverage against being unlucky (subject to the usual caveats of liquidity, uncertainty and changing circumstances.)
  - unpopular42 7y ago
    There's a difference between knowing the risk distribution and knowing the future. The perfect insurance would know how likely it is that you are going to have to pay a catastrophically large amount, and would charge you amount*probability. If probability=1.0, then sure, they should charge you the whole amount.
    - jtbayly 7y ago
      Ah. This makes sense of it. So even if they reduce the pool size to one, they are still multiplying by my unique probability.
    - perl4ever 7y ago
      The future becomes completely predictable as it approaches, so probability necessarily evaporates in the limit. As the data gathered increases, the probability eventually reaches 1.0. For instance, if an insurance company could legally gather all telemetry from your car at a high enough frequency and cancel your policy at will, then it could determine that your car was on an unavoidable collision course and eliminate losses. This may sound like a silly thought experiment, but I think it demonstrates that in principle, there must be some point at which we draw the line on discrimination to have insurance, so if you find yourself defending all discrimination then you've gone wrong somewhere. Either there's a principle that has been missed, or it is valid to just set the rules in society that people are comfortable with.
rubyfan 7y ago
That’s not what they said. That small premium is the cost of not paying directly for the large actual loss, you are paying for your predicted risk not the loss. There isn’t likely a perfect loss prediction to be had, e.g. predicting and understanding risk itself influences the likelihood of avoiding a loss favorably. An ideal scenario might be that people become aware of risky behavior then adjust and therefore change the future prediction. Health insurers do it all the time. Helping at risk customers avoid large losses actually helps the customer and the rest of the less risky customers in the pool (everyone’s premium should go down if the risky become less risky).

virgilp 7y ago

It's basically "no insurance, plus a credit to pay for the losses". Except that you start paying the rate before you incur the loss itself. I still think this form of "perfect insurance" is bad - part of what I like about the insurance is exactly the dispersion of cost in the larger population. Should a chronically-ill person pay a very high insurance, or should the society cover the costs? I'm in the second camp, even though I'm not chronically-ill. It's part of the benefits of having an actual society - we don't need to stand alone.

unpopular42 7y ago
That is indeed part of what people call insurance these days, but in fact it isn't one. It's just a social solidarity scheme, and no one has the balls to call it that way, so it gets mingled into insurance. Without getting into whether it's good or bad, it's just not the true meaning of the term "insurance."
- izacus 7y ago
  If "everyone" uses a word for something, then that is de facto the "true meaning" of a term.
  - torstenvl 7y ago
    No. Even for vernacular natural language, it only matters what native speakers think. Wéijī will never quite mean "danger and opportunity," no matter how many people view it that way, because native Mandarin speakers don't view it that way.
  - leetcrew 7y ago
    constantly having the prescriptivism vs descriptivism debate is tiresome and pedantic. what we call "health insurance" clearly works very differently than any other kind of insurance I'm familiar with. it's not wrong to try and maintain the distinction between two different concepts.
- zAy0LfpBZLC8mAC 7y ago
  You are definitely not a scotsman.
MagnumOpus 7y ago
There is a benefit in separating the parts that are actually just insurance that replaces low-probabily low frequency costs with a predictable payment (and thus can be efficiently provided by competing capitalist companies) with the parts that are social redistribution schemes. The latter are necessarily the government's remit, and the political discussion on whether they are desirable can be had in an informed manner if costs are clear and they are not commingled with insurance elements.
leetcrew 7y ago
healthcare is a bad fit for the concept of insurance. an obvious example is that people use their "insurance" to pay for routine doctors appointments which have highly predictable costs and are scheduled in advance. the chronically ill person in your example enrolls in insurance knowing upfront they will never pay enough in premiums to cover their claims. what we call "health insurance" is really just a payment planning and collective bargaining service rolled into one. it doesn't really work like most other kinds of insurance.

stult 7y ago

You never have to pay a large lump sum. So it’s similar to having savings and always covering your own losses. But with the added benefits of covering you even if you have not had time to save sufficiently to cover your losses (or lack the discipline to do so), or are unlucky and suffer multiple large losses in closer proximity than your savings and income can absorb.

unpopular42 7y ago

It's not useless. You pay premium for the privilege of never having to pay catastrophically large amounts. And that's exactly the difference and the point of insurance: limiting the maximum loss.

jtbayly 7y ago
The perfect insurance would know that I was going to have to pay catastrophically large amount and would therefore charge me a catastrophically large amount.
- mannykannot 7y ago
  There is a difference between estimating a risk with exactitude and predicting with exactitude that an event will or will not happen. Suppose we can accurately say that I have an annual risk of a certain event happening to me as 1/1000 - this is neither a prediction that it will happen to me nor that it will not. If we form an insurance pool of 1000 people all with the same risk, and we each annually put in 1/1000 of the cost of the event to one person, we would have coverage against being unlucky (subject to the usual caveats of liquidity, uncertainty and changing circumstances.)
- unpopular42 7y ago
  There's a difference between knowing the risk distribution and knowing the future. The perfect insurance would know how likely it is that you are going to have to pay a catastrophically large amount, and would charge you amount*probability. If probability=1.0, then sure, they should charge you the whole amount.
  - jtbayly 7y ago
    Ah. This makes sense of it. So even if they reduce the pool size to one, they are still multiplying by my unique probability.
  - perl4ever 7y ago
    The future becomes completely predictable as it approaches, so probability necessarily evaporates in the limit. As the data gathered increases, the probability eventually reaches 1.0. For instance, if an insurance company could legally gather all telemetry from your car at a high enough frequency and cancel your policy at will, then it could determine that your car was on an unavoidable collision course and eliminate losses. This may sound like a silly thought experiment, but I think it demonstrates that in principle, there must be some point at which we draw the line on discrimination to have insurance, so if you find yourself defending all discrimination then you've gone wrong somewhere. Either there's a principle that has been missed, or it is valid to just set the rules in society that people are comfortable with.

rubyfan 7y ago

That’s not what they said. That small premium is the cost of not paying directly for the large actual loss, you are paying for your predicted risk not the loss. There isn’t likely a perfect loss prediction to be had, e.g. predicting and understanding risk itself influences the likelihood of avoiding a loss favorably. An ideal scenario might be that people become aware of risky behavior then adjust and therefore change the future prediction. Health insurers do it all the time. Helping at risk customers avoid large losses actually helps the customer and the rest of the less risky customers in the pool (everyone’s premium should go down if the risky become less risky).