Insurance or Redistribution?

Mark Thoma makes an important point about the “individual mandate” that applies equally well to health care and to Social Security:

“I don’t see anything wrong with asking people to pay the expected value of their health care — a mandate to get insurance to cover the catastrophic things that society would cover in any case — to avoid this type of gaming of the system. Yes, it’s true that many healthy people will pay, remain healthy, and seem to get nothing. But that’s the wrong way to look at it. They have insurance whether they pay for it or not. Society will not let them die of a standard, treatable illness so insurance services are present. In fact, it’s the knowledge that society is providing these services that motivates many people to take a chance and go without.”

This is the relatively common argument that, since people already have guaranteed access to a basic level of emergency care, they should have to pay for it.

There’s a slightly different point in there that I emphasized above and that I want to focus on. Health insurance, like any kind of insurance, can be framed after the fact as redistribution. You pay health insurance premiums, you stay healthy, and therefore you “lose”—your money goes to pay for other people’s losses. But this is true of any kind of insurance. It’s equally true of homeowner’s insurance: if your house doesn’t burn down, you are the victim of redistribution from you to the people whose houses do burn down.

The other way to think of insurance is, well, as insurance. We want and value insurance in the current period, before we know if we’ll be “winners” or “losers” in the future period. The insurance itself has value to us. In fact, whenever you buy insurance, you are hoping that you will end up as a loser.

The framing of the health care individual mandate as a transfer from the healthy to the sick is the exact same as the framing of tax-funded social insurance programs as a transfer from the rich to the poor. At the time you enter the system, you probably don’t know which category you will fall into. You might have some knowledge of the probabilities, but you could turn out to be very wrong: there are plenty of people who are healthy in their twenties but get very sick later. In either case, the framing as redistribution and the focus on winners and losers is a way of making something that all people value—protection from risk, backed by the federal government’s balance sheet—seem like a from of zero-sum redistribution brokered by that evil, meddling federal government.

This post originally appeared at The Baseline Scenario and is posted with permission.

6 Responses to "Insurance or Redistribution?"

  1. zzz05   March 31, 2012 at 3:07 pm

    Basically,"health insurance" is mainly a transfer of funds from the young and presumably healthy to the old and presumably infirm; however, as most of us have the hope to be older at some point, that involves infirmity as much as we are inclined to pretend it doesn't, and thus as you say, this is closer to social security in that it's just an attempt to pay for our national decision not to let old/poor/sick folks die en masse, more than the traditional insurance role of covering ourselves for an unlikely event.

    There is the additional factor of people's highly illusionary fantasies of control over their lives and health; the newspaper interviews a person who says he doesn't need or want to pay for health insurance as he lives a healthy lifestyle and will therefore never make use of it. Presumably he not only has control over his own habits, but also his own genetics, biochemistry, and the attention span of the other drivers on the highway around him.

  2. SdR   April 1, 2012 at 7:17 pm

    But this is exactly why a private insurance market is so wrong. When it comes to Social Security and Medicare, I do have a vote, however diluted the power of that vote may be — especially at his juncture, where a corporation has the same "free speech" rights as I do. On the other hand, do I have a vote as to how private insurance companies are run? Can I elect their boards of directors? Can I insist that they keep salaries of their officers reasonable, not to mention all the other overhead expenses they typically have? Can I force them to keep operating, to not close up shop, if their profit margins don't justify remaining in business, just because I and others "need" their services? Of course not. This isn't how private enterprise works.

  3. SdR   April 1, 2012 at 7:17 pm

    This is just another scheme to transfer $$ to FIRE. You must know by now that FIRE will never be satisfied. FIRE will never have enough money. There is no such thing as "enough."

    I also think it is beyond ironic that the more deeply dependent we are on others, the more we stoke the illusion of "independence," to the point where this empty debate has to take place over and over. (This way, it does, of course, serve to displace the real debate.) I'm the only person I know who cooks everything I eat and who doesn't need a "smart phone." Yet all of these people who nourish themselves at fast food joints and depend on electronics made by near-slave labor to get through their day think they are John Galt.

    They don't think they'll ever get sick? They already are.

  4. terry   April 2, 2012 at 4:05 am

    People taking care of people. If government is involved put a fork in it.

    • SdR   April 7, 2012 at 4:17 pm

      You want your medical care and pension guaranteed by a charity, perhaps? Or maybe they should also do the oversight on the investments in your 401(k)? Sure. Let them "take care" of you.

  5. BlueShield   August 13, 2012 at 8:53 am

    However, it is better to choose a good program of health insurance. For us, this program will health insurance is very helpful.