Acts of God(raganwald.posterous.com)
raganwald.posterous.com
Acts of God
http://raganwald.posterous.com/acts-of-god
29 comments
Did you seriously just preemptively write the thread-leading snarky comment for your own post? Nice try, Reg Braithwaite. But it won't work: how dare you compare your blog post to a Coltrane solo?
Well that particular religious 'homily/joke/parable' is one of my favorites.
I'm guessing the Darwinians will jump in here with "Gov't Health Insurance" subverts natural selection. But frankly I find the whole insurance vs market economies question much more nuanced than that. Of course it is the heretical to suggest that health care, itself is the public service (you know the Army kills/wounds people, the Medics save/heal people kind of thing).
I'm guessing the Darwinians will jump in here with "Gov't Health Insurance" subverts natural selection. But frankly I find the whole insurance vs market economies question much more nuanced than that. Of course it is the heretical to suggest that health care, itself is the public service (you know the Army kills/wounds people, the Medics save/heal people kind of thing).
Hey, I worked for an insurance company for five years or so. Nice try, but sloppy. Flood insurance, which is the main thing you talk about, isn't health insurance. Car insurance, at least in the U.S., is fundamentally different from both health insurance and homeowners insurance. Your remarks prompted me to finally start a stub on the topic, something I have wanted to write about for a long time. Thank you for the inspiration. If I wind up mentioning your piece, and possibly critiquing it, hopefully you can feel flattered rather than attacked.
The only criticism I have of this comparison is that, well, maybe people shouldn't be living in flood plains. Yes, I understand why people want to live near Winnipeg and that there's limited space, but we may reach a certain point where we say "tough, the government won't bail you out for living in an at-risk area". Certainly, in New York State the Governor has announced plans to buy up waterfront land from people wrecked by Sandy to make sure that others don't make the same mistake.
Health isn't the same. We can't say "well, maybe you shouldn't have gotten cancer" to someone who develops it through no fault of their own. We can choose where to live, but we can't (often) choose our health.
Health isn't the same. We can't say "well, maybe you shouldn't have gotten cancer" to someone who develops it through no fault of their own. We can choose where to live, but we can't (often) choose our health.
There is a certain amount of that going on. After Hurricane Hazel in Toronto, the government did buy up a lot of land on the Humber and Don rivers where houses were swept away, they are now parkland.
the trouble is, moving people out of a flood plain within a city is easier than moving an entire city that is a substantial economic entity in its own right.
So I think you're right that where practical, people shouldn't live in flood plains, and perhaps they shouldn't even have a choice in the matter.
the trouble is, moving people out of a flood plain within a city is easier than moving an entire city that is a substantial economic entity in its own right.
So I think you're right that where practical, people shouldn't live in flood plains, and perhaps they shouldn't even have a choice in the matter.
> The only criticism I have of this comparison is that, well, maybe people shouldn't be living in flood plains.
The problem is of course historical imperative: cities used to be set up on waterways (not just near water, but on major rivers), and cities which grew big existed pretty much exclusively on waterways: up until the 19th century they were the only way to move major amounts of materials (and supplies) in a timely manner and with acceptable costs. Also the only way to move water in and sewage out past a certain size (again until the 19th-20th century).
So big cities grew around big waterways, whether inland or at the mouth, and big cities act as black hole, they have a "mass" attracting more people and growing bigger out of it.
And big waterways flood, so you end up with the places which have been the most likely to accumulate huge populations over historical times also being those most likely to get flooded.
To fix that, you have to tear down and remove cities with hundreds of thousands of years of history, social accretion structure and huge populations.
Not really easy.
And that's before you factor in the costs of creating a complete mature metropolis from scratch, and you start wondering about the location: coasts are out (storms, tsunamis); waterway plains are out (floods); geologically active zones are out (quakes, volcano eruptions); periodically dry places with vegetation are out (fires and firestorms); space is out obviously (hard life support system dependency, no ringworld for you).
You're pretty much left with deserts, big mountain ranges and waterworld.
The problem is of course historical imperative: cities used to be set up on waterways (not just near water, but on major rivers), and cities which grew big existed pretty much exclusively on waterways: up until the 19th century they were the only way to move major amounts of materials (and supplies) in a timely manner and with acceptable costs. Also the only way to move water in and sewage out past a certain size (again until the 19th-20th century).
So big cities grew around big waterways, whether inland or at the mouth, and big cities act as black hole, they have a "mass" attracting more people and growing bigger out of it.
And big waterways flood, so you end up with the places which have been the most likely to accumulate huge populations over historical times also being those most likely to get flooded.
To fix that, you have to tear down and remove cities with hundreds of thousands of years of history, social accretion structure and huge populations.
Not really easy.
And that's before you factor in the costs of creating a complete mature metropolis from scratch, and you start wondering about the location: coasts are out (storms, tsunamis); waterway plains are out (floods); geologically active zones are out (quakes, volcano eruptions); periodically dry places with vegetation are out (fires and firestorms); space is out obviously (hard life support system dependency, no ringworld for you).
You're pretty much left with deserts, big mountain ranges and waterworld.
Yeah, but the problem is similar to the "subverting natural selection" argument against health insurance. You're not just accepting historical accident, you're actively taking away the incentives for acting sanely. I can understand the historical imperative, but that's not all you're doing by switching the costs to the government : you're changing the incentives for individuals. The short-term advantages of locating in a specific location (including short-term savings of not securing against acts of God at all) are allocated to individuals, the costs are carried by the whole.
In this case that means building a lot of houses that will predictably suffer massive damage due to floods and/or other "acts of God" that are actually reasonably predictable (when may be unpredictable, but you the odds are 1000:1 that it will happen at some point in the next, say, 10 years).
In the health care that means having habits that are will predictably lead to health problems (take your pick what you consider worse: expensive health problems or fatal health problems or health problems that are likely to spread). Whether we're talking eating fat, smoking, carelessness around animals, not cleaning living places or promiscuity : all will result in steadily building likelihood of serious health consequences.
The issue is that this leads to an exponentially rising cost (you can prove that given reasonable assumptions the consequences' cost and seriousness will rise along with population size or faster), even in the face of efficiency improvements. This is because exponentially rising costs versus exponentially diminishing efficiency improvements : there is no question which will win, there's only a question of when.
The problem is that in the short term efficiency improvements are likely to win, which is then of course used as an argument to state "see ? We can handle it". The truth is, obviously, that there is no way to handle the exponential rise that doesn't violate the laws of physics.
So the real question is : Why build systems that common sense says : 1) must fail, no matter how many resources are comitted to make them work 2) are very likely to cause enormous damage just before they fail completely
In this case that means building a lot of houses that will predictably suffer massive damage due to floods and/or other "acts of God" that are actually reasonably predictable (when may be unpredictable, but you the odds are 1000:1 that it will happen at some point in the next, say, 10 years).
In the health care that means having habits that are will predictably lead to health problems (take your pick what you consider worse: expensive health problems or fatal health problems or health problems that are likely to spread). Whether we're talking eating fat, smoking, carelessness around animals, not cleaning living places or promiscuity : all will result in steadily building likelihood of serious health consequences.
The issue is that this leads to an exponentially rising cost (you can prove that given reasonable assumptions the consequences' cost and seriousness will rise along with population size or faster), even in the face of efficiency improvements. This is because exponentially rising costs versus exponentially diminishing efficiency improvements : there is no question which will win, there's only a question of when.
The problem is that in the short term efficiency improvements are likely to win, which is then of course used as an argument to state "see ? We can handle it". The truth is, obviously, that there is no way to handle the exponential rise that doesn't violate the laws of physics.
So the real question is : Why build systems that common sense says : 1) must fail, no matter how many resources are comitted to make them work 2) are very likely to cause enormous damage just before they fail completely
You can certainly choose not to smoke, and to exercise, and to take care of yourself in general. We do introduce a principal agent problem into the mix when we start letting people get their healthcare paid for by other people.
Yes, and that's why I added "often" to my last sentence. But while you can certainly avoid some illnesses by making good life choices, it's still out of your control. You can have never touched a cigarette and still get lung cancer.
In fact, that opens up another reason for public healthcare- many illnesses are caused by society as a whole. That second hand smoke from the man sat next to you at the bus stop is an individual thing, but the pollution coming out of the power station on the edge of town is a far broader issue.
You could say "fine the power company!", but that's short sighted- everyone benefits from the power they provide. As a society we have decided that x level of pollution is acceptable in order for us to have y level of comfort. The side variable is the number of illnesses caused by that pollution, and I think there's a strong argument that the costs of that should be borne by society.
In fact, that opens up another reason for public healthcare- many illnesses are caused by society as a whole. That second hand smoke from the man sat next to you at the bus stop is an individual thing, but the pollution coming out of the power station on the edge of town is a far broader issue.
You could say "fine the power company!", but that's short sighted- everyone benefits from the power they provide. As a society we have decided that x level of pollution is acceptable in order for us to have y level of comfort. The side variable is the number of illnesses caused by that pollution, and I think there's a strong argument that the costs of that should be borne by society.
I agree, but eventually everyone does bear the cost as individuals.
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The points I got from this were:
1) People enjoy living in flood plains; 2) People who live in flood plains can't afford flood insurance; 3) Therefore, it's everyone else's job to compensate them for the cost of flood damage.
Finally, this is used (somehow) as an argument for universal healthcare. This logic seems faulty.
1) People enjoy living in flood plains; 2) People who live in flood plains can't afford flood insurance; 3) Therefore, it's everyone else's job to compensate them for the cost of flood damage.
Finally, this is used (somehow) as an argument for universal healthcare. This logic seems faulty.
You seem to have an ideological objection to the argument. Maybe you should simply state that you are perfectly okay with a city of people being left in dire straits (heh) when the river overruns its banks or the levees break.
I can understand that, even if I don't agree with it, and that makes a lot more sense than saying my argument is faulty when what you really believe is that a society that takes care of its own is faulty ;-)
I can understand that, even if I don't agree with it, and that makes a lot more sense than saying my argument is faulty when what you really believe is that a society that takes care of its own is faulty ;-)
Here's my stance on the whole thing:
Natural disasters which are so far outside the realm of prediction as to become 'black swan' events are, of course, horrible, and everyone benefits from pooling resources to combat these situations (although this is rarely in the form of insurance, and more in savings).
But I view insurance premium pricing (as with all other pricing) as a signal, more than as a result of reckless profiteering. If you're looking to move into a house and the insurance on it is too expensive for you, it means you can't afford that house. Flood/earthquake/volcano risk is equally as important a financial aspect of the property as its purchase price, and just like we saw with the subprime loan crisis, giving credit to those who can't afford it is generally a bad idea. Even if you're prepared to bail out all the institutions which hold that credit, you still get crises.
Now of course, the insurance premium scales with the price of the property, so in an area which often floods, the TCO of houses with a purchase price of X will be inflated to X * (1 + Y) (with the flood risk premium Y calculated by the underwriters based on historical data and predictive models). This means your purchasing power in a flood plain should have a multiple of 1/(1 + Y) compared to outside the flood plain. Basic laws of supply and demand mean that fewer people would be able to, or choose to live in such an area, and therefore the catastrophe of a flood (including the burden on the underwriters) would be lessened accordingly.
There once was a time where people would indeed travel great distances to improve their living situation, and I've done this myself on a few occasions, taking apartments that were much further from the area I wanted to be because the rents on the more central places were too expensive for me. The idea that people have a human right to be able to afford whatever they want, subsidized by everyone else, is a very recent idea indeed, and it's one which I feel isn't standing up to the test of time.
In terms of healthcare, a great analogy to 'flood plains' would be people who continuously put their life and limb at risk by engaging in acts which are well-known to be harmful: smoking, excessive unhealthy eating, and substance abuse. My point is illustrated by the prolonged debate in countries with socialized healthcare on how to treat smokers, the obese, and drug addicts. It's by no means a solved problem, but my point is that you can't refer to the example of publicly-subsidized insurance of individuals who take above-average risks as an example of why we need more of that exact same thing.
Natural disasters which are so far outside the realm of prediction as to become 'black swan' events are, of course, horrible, and everyone benefits from pooling resources to combat these situations (although this is rarely in the form of insurance, and more in savings).
But I view insurance premium pricing (as with all other pricing) as a signal, more than as a result of reckless profiteering. If you're looking to move into a house and the insurance on it is too expensive for you, it means you can't afford that house. Flood/earthquake/volcano risk is equally as important a financial aspect of the property as its purchase price, and just like we saw with the subprime loan crisis, giving credit to those who can't afford it is generally a bad idea. Even if you're prepared to bail out all the institutions which hold that credit, you still get crises.
Now of course, the insurance premium scales with the price of the property, so in an area which often floods, the TCO of houses with a purchase price of X will be inflated to X * (1 + Y) (with the flood risk premium Y calculated by the underwriters based on historical data and predictive models). This means your purchasing power in a flood plain should have a multiple of 1/(1 + Y) compared to outside the flood plain. Basic laws of supply and demand mean that fewer people would be able to, or choose to live in such an area, and therefore the catastrophe of a flood (including the burden on the underwriters) would be lessened accordingly.
There once was a time where people would indeed travel great distances to improve their living situation, and I've done this myself on a few occasions, taking apartments that were much further from the area I wanted to be because the rents on the more central places were too expensive for me. The idea that people have a human right to be able to afford whatever they want, subsidized by everyone else, is a very recent idea indeed, and it's one which I feel isn't standing up to the test of time.
In terms of healthcare, a great analogy to 'flood plains' would be people who continuously put their life and limb at risk by engaging in acts which are well-known to be harmful: smoking, excessive unhealthy eating, and substance abuse. My point is illustrated by the prolonged debate in countries with socialized healthcare on how to treat smokers, the obese, and drug addicts. It's by no means a solved problem, but my point is that you can't refer to the example of publicly-subsidized insurance of individuals who take above-average risks as an example of why we need more of that exact same thing.
People are naturally risk adverse. Government subsidized flood insurance incentivises people into living in locations they wouldn't otherwise live. The free market is telling people not to live there because it's prohibitively costly. Government puts people's life in danger by manipulating the cost of living in dangerous places. It forces society to fit the bill for the endless cycle of destruction then reconstruction.
Besides the fact government interference in the insurance market does more harm than good to those it intends to protect, the wealthy are the ones that most benefit from government flood insurance. The vast majority of people that live in places where insurance is unavailable or too expensive are those wealthy enough to build a house on a hurricane prone beach. (Think too of the fire/earthquake prone hills of glorious sunny California)
What you're really asking for is those of average means to subsidies second beach houses for the rich. Not only is your argument faulty it's immoral.
We're all better off taking care of ourselves than being taken care of by morons. The government solution to a problem is inevitably worse that the problem itself.
Besides the fact government interference in the insurance market does more harm than good to those it intends to protect, the wealthy are the ones that most benefit from government flood insurance. The vast majority of people that live in places where insurance is unavailable or too expensive are those wealthy enough to build a house on a hurricane prone beach. (Think too of the fire/earthquake prone hills of glorious sunny California)
What you're really asking for is those of average means to subsidies second beach houses for the rich. Not only is your argument faulty it's immoral.
We're all better off taking care of ourselves than being taken care of by morons. The government solution to a problem is inevitably worse that the problem itself.
The cities are already there. That's a done deal.
And of the people that live there, not everyone lives there because they CHOSE it. Not everyone has the ability to up and move to a newer, safer city simply because they're worried about floods.
It's just not that easy.
So, given that cities ARE built on flood plains, and that flood insurance IS refused for those people that live there, what are we going to do? Abandon them entirely when a flood happens?
Good luck with that. What do you think will happen to the government that says "too damn bad, you should've moved?"
By the way, if you think Winnipeg is 'beach houses for the rich,' dude.. yeah..
And of the people that live there, not everyone lives there because they CHOSE it. Not everyone has the ability to up and move to a newer, safer city simply because they're worried about floods.
It's just not that easy.
So, given that cities ARE built on flood plains, and that flood insurance IS refused for those people that live there, what are we going to do? Abandon them entirely when a flood happens?
Good luck with that. What do you think will happen to the government that says "too damn bad, you should've moved?"
By the way, if you think Winnipeg is 'beach houses for the rich,' dude.. yeah..
Why do you (and raganwald) portray the choice as assistance-or-total-abandonment?
Sure, provide infrequent rescues, emergency aid, and damage-mitigation. Just avoid complete 'make-whole' reimbursements, and make the costs come marginally more from those areas subject to frequent, foreseeable disasters... so that there's an incentive gradient for future moves/development to get-out-of-the-danger-zones. Not a "too bad" all-or-nothing ultimatum, but also not blank-checks for folly.
Otherwise, you're subsidizing more destruction and misery. That has been a real legacy of much unconditionally-'compassionate' weather aid, at least in USA flood and hurricane zones.
Sure, provide infrequent rescues, emergency aid, and damage-mitigation. Just avoid complete 'make-whole' reimbursements, and make the costs come marginally more from those areas subject to frequent, foreseeable disasters... so that there's an incentive gradient for future moves/development to get-out-of-the-danger-zones. Not a "too bad" all-or-nothing ultimatum, but also not blank-checks for folly.
Otherwise, you're subsidizing more destruction and misery. That has been a real legacy of much unconditionally-'compassionate' weather aid, at least in USA flood and hurricane zones.
I've never lost a house because of a flood or hurricane or whatever, but I'm pretty sure that governments don't do make-whole reimbursements. Could be wrong..
That said, at least in Canada, I believe that federal, provincial and municipal governments share the burden of paying for restoration after a disaster. That is more or less what you suggest - there's a slight incentive to move away from Manitoba (for example), because they instituted a tax-hike to pay for their last flood. http://www.cbc.ca/news/canada/manitoba/story/2012/04/17/mb-b...
That said, at least in Canada, I believe that federal, provincial and municipal governments share the burden of paying for restoration after a disaster. That is more or less what you suggest - there's a slight incentive to move away from Manitoba (for example), because they instituted a tax-hike to pay for their last flood. http://www.cbc.ca/news/canada/manitoba/story/2012/04/17/mb-b...
Or do what Western Europe did : FIX the country layout so the danger zones stop being danger zones.
We do actually have the ability to prevent a lot of this. Flood zones, dams, flood plans, ...
We do actually have the ability to prevent a lot of this. Flood zones, dams, flood plans, ...
Just because one does not agree to financially compensate people for "Acts of God" does not mean they are "perfectly okay with a city of people being left in dire straits".
There is a difference between losing your life and having to empty your savings. Questioning whether or not I am responsible for my fellow man's finances seems fair.
There is a difference between losing your life and having to empty your savings. Questioning whether or not I am responsible for my fellow man's finances seems fair.
He is saying that people should pay for their actions when they move to a high-risk area. Unfortunately, they cannot properly evaluate the risk because insurance companies cannot create due to competition with the "free" bailouts provided by the government.
It's an analogy. If you accept the premise that the market for health insurance has similar properties to the market for flood insurance, namely that the information about who needs it is readily available, then those two markets are broken in similar ways.
I do get what you are saying though. Why do we let people live in flood plains when they can't afford to have their homes be destroyed? In other words, if they don't have the means to self-insure.
Well, we could have the government regulate flood plains and forbid anybody from building homes there. But there are already homes there, so that ship has sailed. So basically, the government, representing the collective will of the people, has decided that it won't let people's lives be destroyed, even if they decide to live in a risky area.
If you apply this logic to health insurance, there are people who are uninsurable in exactly the same way as having a house in a flood plain makes you uninsurable. If you have cancer already, no insurance company will insure you against cancer. There's no chance of you net having cancer. The costs are known. Asking for insurance is like trying to get something for free.
But as a society we probably don't want these people to just die because they aren't insured. So we have to all agree to some solution that doesn't depend on private insurance.
I do get what you are saying though. Why do we let people live in flood plains when they can't afford to have their homes be destroyed? In other words, if they don't have the means to self-insure.
Well, we could have the government regulate flood plains and forbid anybody from building homes there. But there are already homes there, so that ship has sailed. So basically, the government, representing the collective will of the people, has decided that it won't let people's lives be destroyed, even if they decide to live in a risky area.
If you apply this logic to health insurance, there are people who are uninsurable in exactly the same way as having a house in a flood plain makes you uninsurable. If you have cancer already, no insurance company will insure you against cancer. There's no chance of you net having cancer. The costs are known. Asking for insurance is like trying to get something for free.
But as a society we probably don't want these people to just die because they aren't insured. So we have to all agree to some solution that doesn't depend on private insurance.
The implication in your wording is that a lot of people who live outside the flood plain are compensating people living in Winnipeg for their flood damage, but the way I read it, the citizens of the province of Manitoba are doing the compensating. Since over half the population of Manitoba lives in Winnipeg, it's not quite the black-and-white "taxes are theft!" scenario your wording makes it sound like.
I hope you're leaving this comment from a perfectly flat plain that never floods, is out of tornado country, has no mountains nearby to cause landslides, is far away from any earthquake faults, is out of hurricane territory, never has heatwaves, and never gets blizzards. Otherwise, I'm calling hypocrisy.
> Up here in Canuckistan, we do have private insurance. You must, for example, privately insure your own dwelling against things like fire or burglary.
"You must"? Not really, unless you have a mortgage. If you don't have a mortgage, if you actually own your house, you aren't required to buy insurance, and you may be much better off self-insuring.
And now for the best-kept secret in the insurance business -- if an insurer evaluates your true risk and offers a policy, it's not worth it. Why? Because on average, you will have paid out much more in insurance payments than you will get back in the event of a claim. You would be better off putting the insurance payments into an investment that (a) will grow over time and (b) can be used against future loss.
Do you doubt this? Ask yourself why an insurer would be willing to issue a policy on which he expected to lose money. Are insurance companies profitable? Yes, they are. Any questions?
If you have a mortgage, you are required to buy insurance. If you don't, by all means ask yourself why you are willing to give your money away to an insurance company instead of investing it by yourself, for yourself.
More detail here: http://arachnoid.com/wrong/index.html#Insurance
EDIT: If you cannot afford to lose the insured item, then the above doesn't apply. I should have said this at the outset.
"You must"? Not really, unless you have a mortgage. If you don't have a mortgage, if you actually own your house, you aren't required to buy insurance, and you may be much better off self-insuring.
And now for the best-kept secret in the insurance business -- if an insurer evaluates your true risk and offers a policy, it's not worth it. Why? Because on average, you will have paid out much more in insurance payments than you will get back in the event of a claim. You would be better off putting the insurance payments into an investment that (a) will grow over time and (b) can be used against future loss.
Do you doubt this? Ask yourself why an insurer would be willing to issue a policy on which he expected to lose money. Are insurance companies profitable? Yes, they are. Any questions?
If you have a mortgage, you are required to buy insurance. If you don't, by all means ask yourself why you are willing to give your money away to an insurance company instead of investing it by yourself, for yourself.
More detail here: http://arachnoid.com/wrong/index.html#Insurance
EDIT: If you cannot afford to lose the insured item, then the above doesn't apply. I should have said this at the outset.
Yes, insurance is a bad idea for anything that you can afford to replace if you lose it.
If, however, losing that item would lead to your financial ruin (such as losing your home and everything in it), then the insurance is worthwhile. It's how you avoid "gamblers ruin". Yes, on average it's a net negative expected value, otherwise the insurance companies wouldn't offer it; but it prevents you from losing the bulk of your wealth in the event of disaster, and being unable to recover from said disaster.
It even says so at your link: if you can't afford to replace something, and must have it, then insurance makes sense.
So, it's worthwhile buying insurance for those things that you just can't replace: your house, your body. Things that are more replaceable? I have enough money saved up to by a new car if need be. If my car is stolen or totalled, I can replace it out of pocket; so I need only the bare minimum liability insurance, not accident insurance for my car.
If, however, losing that item would lead to your financial ruin (such as losing your home and everything in it), then the insurance is worthwhile. It's how you avoid "gamblers ruin". Yes, on average it's a net negative expected value, otherwise the insurance companies wouldn't offer it; but it prevents you from losing the bulk of your wealth in the event of disaster, and being unable to recover from said disaster.
It even says so at your link: if you can't afford to replace something, and must have it, then insurance makes sense.
So, it's worthwhile buying insurance for those things that you just can't replace: your house, your body. Things that are more replaceable? I have enough money saved up to by a new car if need be. If my car is stolen or totalled, I can replace it out of pocket; so I need only the bare minimum liability insurance, not accident insurance for my car.
> It even says so at your link: if you can't afford to replace something, and must have it, then insurance makes sense.
Yes, absolutely, if you cannot afford to lose the insured item, then you really should get insurance. But that leads to the insurance paradox: people who buy insurance tend to be people who cannot afford to lose their possessions because they buy insurance instead of becoming investors.
Yes, absolutely, if you cannot afford to lose the insured item, then you really should get insurance. But that leads to the insurance paradox: people who buy insurance tend to be people who cannot afford to lose their possessions because they buy insurance instead of becoming investors.
This is horrible advice and I hope that nobody is swayed by it.
If you understand the nature of repetitive investments in a risky environment, you'd know that the correct long-term financial strategy is to constantly aim to maximize the expected value of the LOG of your net worth. That is because small losses that leave you with working capital are fairly easy to recover from, while large losses that leave you with no working capital completely hose you.
If you have enough money that a particular loss would not severely impact your overall financial health, insurance does not make sense for the reason that you say. But if the loss is large enough to financially wipe you out, then insurance can make sense both for your long-term financial well-being and the insurer's long-term financial well-being.
Therefore the correct approach is to only buy insurance for things whose loss would wipe you out financially.
If you understand the nature of repetitive investments in a risky environment, you'd know that the correct long-term financial strategy is to constantly aim to maximize the expected value of the LOG of your net worth. That is because small losses that leave you with working capital are fairly easy to recover from, while large losses that leave you with no working capital completely hose you.
If you have enough money that a particular loss would not severely impact your overall financial health, insurance does not make sense for the reason that you say. But if the loss is large enough to financially wipe you out, then insurance can make sense both for your long-term financial well-being and the insurer's long-term financial well-being.
Therefore the correct approach is to only buy insurance for things whose loss would wipe you out financially.
> Therefore the correct approach is to only buy insurance for things whose loss would wipe you out financially.
I agree, and I added this clarification to the original post.
I agree, and I added this clarification to the original post.
This is a ridiculous argument. Insurance works because not everyone's house burns down. Only some people's do. The people whose houses don't burn down pay for those whose houses do. investing to repay for your house should it burn down only works if you know you're not going to have your house burn down for 30 years. What if your house burns down the day after you buy it? if you had insurance, you'd be fine. If you put that initial $500 (or whatever) in an investment, you have.... $500.
You're missing the point that, on average, insurance benefits the insurance company, not the policy holders. How do we know this? Because insurance companies are eager to sell you a policy. If the policy benefited you on average, insurance companies would go out of business on average. But ... they don't.
> The people whose houses don't burn down pay for those whose houses do.
Yes, and I don't smoke in bed. Why should I pay for the risky and unhealthy habits of others? But more importantly, I'm better off investing my money against a future loss than handing it over to an insurance company. This is only true if I can afford to lose the insured item, but many people buy insurance without asking themselves this basic question.
> What if your house burns down the day after you buy it?
This is all about probability, not focusing in on the worst possible case. Insurance companies naturally enough want you to focus in on the worst possible case. But in the long term, and statistically, you're better off self-insuring -- unless a mortgage requires you to carry insurance, or unless you simply cannot afford to lose the insured item.
> The people whose houses don't burn down pay for those whose houses do.
Yes, and I don't smoke in bed. Why should I pay for the risky and unhealthy habits of others? But more importantly, I'm better off investing my money against a future loss than handing it over to an insurance company. This is only true if I can afford to lose the insured item, but many people buy insurance without asking themselves this basic question.
> What if your house burns down the day after you buy it?
This is all about probability, not focusing in on the worst possible case. Insurance companies naturally enough want you to focus in on the worst possible case. But in the long term, and statistically, you're better off self-insuring -- unless a mortgage requires you to carry insurance, or unless you simply cannot afford to lose the insured item.
You're missing the point that, on average, insurance benefits the insurance company, not the policy holders. How do we know this? Because insurance companies are eager to sell you a policy.
As a general argument, this is not valid. Consider a parallel argument: on average, selling food benefits the grocery store, not its customers. How do we know this? Because the store is eager to sell you food.
The argument ignores the fact that the things being exchanged have different value to the two parties to the exchange. In the grocery store case, the store values the food less than the money you pay them, while you value the food more than the money you pay them. The exchange is a net gain for both parties.
Similarly, if you value the transfer of risk highly enough, buying insurance can be a net gain for you as well as the insurance company. That's really the underlying logic of your statement that you should only buy insurance if you cannot afford to lose the item.
As a general argument, this is not valid. Consider a parallel argument: on average, selling food benefits the grocery store, not its customers. How do we know this? Because the store is eager to sell you food.
The argument ignores the fact that the things being exchanged have different value to the two parties to the exchange. In the grocery store case, the store values the food less than the money you pay them, while you value the food more than the money you pay them. The exchange is a net gain for both parties.
Similarly, if you value the transfer of risk highly enough, buying insurance can be a net gain for you as well as the insurance company. That's really the underlying logic of your statement that you should only buy insurance if you cannot afford to lose the item.
>> You're missing the point that, on average, insurance benefits the insurance company, not the policy holders. How do we know this? Because insurance companies are eager to sell you a policy.
> As a general argument, this is not valid. Consider a parallel argument: on average, selling food benefits the grocery store, not its customers. How do we know this? Because the store is eager to sell you food.
You're comparing a tangible purchase with an intangible one. They aren't comparable. It's one thing to walk out of a store with a loaf of bread, but quite another to walk out with a promise to deliver a loaf of bread only if a certain series of events takes place.
With insurance, you aren't buying a tangible thing, you're buying risk immunity. Pricing risk immunity is not at all like pricing bread -- there are many more issues.
There are any number of people who make the same mistake you're making -- they think of insurance as a straightforward commodity purchase. Insurance companies love this way of thinking -- it keeps people from evaluating the transaction in realistic terms.
But insurance is not bread. Insurance is one strategy for managing risk, but it's not the only one. For many people, self-insuring is a much better approach to managing risk. And as an institution becomes larger, the likelihood that they will self-insure also becomes larger, for a simple reason -- it's more cost-effective.
> As a general argument, this is not valid. Consider a parallel argument: on average, selling food benefits the grocery store, not its customers. How do we know this? Because the store is eager to sell you food.
You're comparing a tangible purchase with an intangible one. They aren't comparable. It's one thing to walk out of a store with a loaf of bread, but quite another to walk out with a promise to deliver a loaf of bread only if a certain series of events takes place.
With insurance, you aren't buying a tangible thing, you're buying risk immunity. Pricing risk immunity is not at all like pricing bread -- there are many more issues.
There are any number of people who make the same mistake you're making -- they think of insurance as a straightforward commodity purchase. Insurance companies love this way of thinking -- it keeps people from evaluating the transaction in realistic terms.
But insurance is not bread. Insurance is one strategy for managing risk, but it's not the only one. For many people, self-insuring is a much better approach to managing risk. And as an institution becomes larger, the likelihood that they will self-insure also becomes larger, for a simple reason -- it's more cost-effective.
Insurance is one strategy for managing risk, but it's not the only one. For many people, self-insuring is a much better approach to managing risk.
All this is quite true, but it doesn't refute what I was saying. I was saying that there can be circumstances where purchasing risk immunity (IMO a better term would be risk transfer) is a net gain for both parties, because the person purchasing it values it highly enough. You admit this is true since you admit people should purchase insurance on things they can't afford to lose.
A lot of the people you are arguing with in this thread are basically saying they can't afford to lose their house; or, equivalently, that purchasing the risk transfer is worth it to them. It's not responsive to just say "no it isn't"; in some cases it is.
Pricing risk immunity is not at all like pricing bread -- there are many more issues.
Then maybe we should focus discussion on those issues, instead of on blanket generalities. What are the issues?
All this is quite true, but it doesn't refute what I was saying. I was saying that there can be circumstances where purchasing risk immunity (IMO a better term would be risk transfer) is a net gain for both parties, because the person purchasing it values it highly enough. You admit this is true since you admit people should purchase insurance on things they can't afford to lose.
A lot of the people you are arguing with in this thread are basically saying they can't afford to lose their house; or, equivalently, that purchasing the risk transfer is worth it to them. It's not responsive to just say "no it isn't"; in some cases it is.
Pricing risk immunity is not at all like pricing bread -- there are many more issues.
Then maybe we should focus discussion on those issues, instead of on blanket generalities. What are the issues?
Your life is not a statistic. You are not the average. If I gave you $20 to play russian roulette, would you do it? It's only a 1/6 chance of death. On average you'll be up $20, right?
I'm guessing most people would not do it. The risk of death is simply not worth the reward.
You keep talking about "things you can afford to lose". Houses NEVER fall into that category. So why do you keep bringing it up? We're talking about houses, not the DVD player you buy at Best Buy.
I'm guessing most people would not do it. The risk of death is simply not worth the reward.
You keep talking about "things you can afford to lose". Houses NEVER fall into that category. So why do you keep bringing it up? We're talking about houses, not the DVD player you buy at Best Buy.
> You keep talking about "things you can afford to lose". Houses NEVER fall into that category.
Of course they do. Consider -- do you want to be financially solvent, or own a house? Many people choose being financially solvent. Others walk away from houses whose mortgages are larger than the house's actual value. In both these cases, a house is just another commodity, a choice, not an absolute necessity like breathing.
> So why do you keep bringing it up?
Because it's true, as I just demonstrated.
Of course they do. Consider -- do you want to be financially solvent, or own a house? Many people choose being financially solvent. Others walk away from houses whose mortgages are larger than the house's actual value. In both these cases, a house is just another commodity, a choice, not an absolute necessity like breathing.
> So why do you keep bringing it up?
Because it's true, as I just demonstrated.
Investing in yourself only works on average.
So you pay off your mortgage and decide to cancel your insurance and start investing the monthly payments yourself. The next day your home burns down and you don't have enough investment money to cover even a small fraction of your home's worth.
Of course you can get lucky too. After 30 years of investing your monthly insurance payment you have the full value of your home and its items. Now there is no need to contribute to your insurance fund ever again.
Most people don't wish to gamble in this way when their homes are at stake and instead pool their risk with other home owners. The group managing these assets is an insurance company. The home owners are willing to pay a slight premium towards the operating expenses of the insurance company.
So you pay off your mortgage and decide to cancel your insurance and start investing the monthly payments yourself. The next day your home burns down and you don't have enough investment money to cover even a small fraction of your home's worth.
Of course you can get lucky too. After 30 years of investing your monthly insurance payment you have the full value of your home and its items. Now there is no need to contribute to your insurance fund ever again.
Most people don't wish to gamble in this way when their homes are at stake and instead pool their risk with other home owners. The group managing these assets is an insurance company. The home owners are willing to pay a slight premium towards the operating expenses of the insurance company.
> Investing in yourself only works on average.
No, not true. On average, you are much better off investing the insurance payments than paying for insurance. If this were not true, insurance companies would be reluctant to offer you a policy. But notice that insurance companies are always willing to write a policy -- which, by its very existence, must benefit them on average.
> Most people don't wish to gamble ...
But buying insurance is as much a gamble as not buying insurance. The difference is the number of players who are gambling with you.
Obviously if you cannot afford to lose the insured item, that's different. My advice is for possessions the loss of which doesn't cripple your life.
> The home owners are willing to pay a slight premium towards the operating expenses of the insurance company.
My point is that the owner would be way ahead by investing the insurance payments rather than handing them over to an insurance company.
No, not true. On average, you are much better off investing the insurance payments than paying for insurance. If this were not true, insurance companies would be reluctant to offer you a policy. But notice that insurance companies are always willing to write a policy -- which, by its very existence, must benefit them on average.
> Most people don't wish to gamble ...
But buying insurance is as much a gamble as not buying insurance. The difference is the number of players who are gambling with you.
Obviously if you cannot afford to lose the insured item, that's different. My advice is for possessions the loss of which doesn't cripple your life.
> The home owners are willing to pay a slight premium towards the operating expenses of the insurance company.
My point is that the owner would be way ahead by investing the insurance payments rather than handing them over to an insurance company.
You are why universal healthcare is so essential - because most people are really bad at calculating their own risk vs. reward.
Risk: $1000 a year in home insurance that could be used to buy something else.
Reward: the 1 in 1000 chance that your home burns down, you aren't completely boned.
The risk is relatively small. $1000 a year isn't going to change your life. But the safety that it buys you is huge, because it prevents your life from being devastated should something unlucky happen.
Risk: $1000 a year in home insurance that could be used to buy something else.
Reward: the 1 in 1000 chance that your home burns down, you aren't completely boned.
The risk is relatively small. $1000 a year isn't going to change your life. But the safety that it buys you is huge, because it prevents your life from being devastated should something unlucky happen.
> most people are really bad at calculating their own risk vs. reward.
Considering how easy it is, that's unlikely. After all, consider:
* If you can afford to lose the insured item, and
* If a mortgage lender doesn't require you to carry insurance, and
* If an insurance company wants to sell you a policy,
* Then you're better off self-insuring.
This is not rocket science.
> You are why universal healthcare is so essential
I agree that universal health care is essential, simply because of where we are, not on basic principles. But it's equally true that health insurance is the reason why health costs are spiraling out of control -- people aren't bargaining for good deals in that "market" because the insurance company is paying. If we were required to pay out of pocket for each health expenditure, we would see a big decline in costs.
The evidence? Many doctors and dentists have two price lists -- one for the insured and one for the uninsured. The uninsured pay less.
I emphasize that we definitely need universal health care, and the sooner the better. Nothing I say should be interpreted as doubting this necessity. But this is only because we've painted ourselves into a corner.
Considering how easy it is, that's unlikely. After all, consider:
* If you can afford to lose the insured item, and
* If a mortgage lender doesn't require you to carry insurance, and
* If an insurance company wants to sell you a policy,
* Then you're better off self-insuring.
This is not rocket science.
> You are why universal healthcare is so essential
I agree that universal health care is essential, simply because of where we are, not on basic principles. But it's equally true that health insurance is the reason why health costs are spiraling out of control -- people aren't bargaining for good deals in that "market" because the insurance company is paying. If we were required to pay out of pocket for each health expenditure, we would see a big decline in costs.
The evidence? Many doctors and dentists have two price lists -- one for the insured and one for the uninsured. The uninsured pay less.
I emphasize that we definitely need universal health care, and the sooner the better. Nothing I say should be interpreted as doubting this necessity. But this is only because we've painted ourselves into a corner.
> On average, you are much better off investing the insurance payments than paying for insurance. If this were not true, insurance companies would be reluctant to offer you a policy.
Your maximum benefit when making this choice is the profit margin of the insurance company, which is typically well under 10%--hardly "way ahead."
Your maximum benefit when making this choice is the profit margin of the insurance company, which is typically well under 10%--hardly "way ahead."
> Your maximum benefit when making this choice is the profit margin of the insurance company, ...
No, they aren't the same.
... which is typically well under 10%--hardly "way ahead."
I can't find any reliable figures for property insurance profits, so I'm going to accept your figure. But that's not the whole story -- the insurance company's profit figure is not the same as a policy holder's loss, they're based on different calculations.
In any case, we're comparing a net loss (policy holder) to a net gain (self-insurer who invests his own money). That's not a difficult decision to make.
No, they aren't the same.
... which is typically well under 10%--hardly "way ahead."
I can't find any reliable figures for property insurance profits, so I'm going to accept your figure. But that's not the whole story -- the insurance company's profit figure is not the same as a policy holder's loss, they're based on different calculations.
In any case, we're comparing a net loss (policy holder) to a net gain (self-insurer who invests his own money). That's not a difficult decision to make.
> if an insurer evaluates your true risk and offers a policy, it's not worth it
This is kind of a silly argument. You're paying a little extra to avoid the situation of something happening before you've saved enough to replace it.
I go by a more specific, but actually workable, rule: "if an insurer evaluates your true risk and offers a policy _and you can afford to replace it right now_, it's not worth it". For example, I don't buy insurance on electronics - if I couldn't afford to lose it, I would find something cheaper. But I would certainly insure a house, unless I had a couple hundred grand lying around.
This is kind of a silly argument. You're paying a little extra to avoid the situation of something happening before you've saved enough to replace it.
I go by a more specific, but actually workable, rule: "if an insurer evaluates your true risk and offers a policy _and you can afford to replace it right now_, it's not worth it". For example, I don't buy insurance on electronics - if I couldn't afford to lose it, I would find something cheaper. But I would certainly insure a house, unless I had a couple hundred grand lying around.
>> if an insurer evaluates your true risk and offers a policy, it's not worth it
> This is kind of a silly argument.
No, that is a silly argument, because it doesn't offer an explanation. Consider those electronic service plans that retailers are always trying to get you to buy. They's not worth it. How do I know? Because the retailer wants to sell it to me. Therefore he must come out ahead in the transaction. Therefore it's not in my interest -- I would be better off paying for a repair myself, or replacing the item. How difficult is that?
It's the same with insurance. If you cannot afford to lose the insured item, by all means insure it. For every other case, think a little harder and you may realize there's a reason the insurance company is so eager to sell you a policy.
> This is kind of a silly argument.
No, that is a silly argument, because it doesn't offer an explanation. Consider those electronic service plans that retailers are always trying to get you to buy. They's not worth it. How do I know? Because the retailer wants to sell it to me. Therefore he must come out ahead in the transaction. Therefore it's not in my interest -- I would be better off paying for a repair myself, or replacing the item. How difficult is that?
It's the same with insurance. If you cannot afford to lose the insured item, by all means insure it. For every other case, think a little harder and you may realize there's a reason the insurance company is so eager to sell you a policy.
You're saying exactly the same thing I said. I'm not sure why my version is silly, except that you cut out the explanation part when you quoted me.
> You would be better off putting the insurance payments into an investment that (a) will grow over time and (b) can be used against future loss.
Unless "future" happens to be "next tuesday", and "loss" happens to be "catastrophic fire".
Unless "future" happens to be "next tuesday", and "loss" happens to be "catastrophic fire".
> Unless "future" happens to be "next tuesday", and "loss" happens to be "catastrophic fire".
That's why people should learn statistics and probability. By buying insurance, you're betting that your house will burn down pretty soon. The insurance company is betting it won't burn down very soon. On average, the insurance company comes out ahead. How do we know? They stay in business, a business paid for with your money.
That's why people should learn statistics and probability. By buying insurance, you're betting that your house will burn down pretty soon. The insurance company is betting it won't burn down very soon. On average, the insurance company comes out ahead. How do we know? They stay in business, a business paid for with your money.
I'd argue that by buying insurance, I'm not betting that my house will burn down soon - I'm betting that were it to burn down, I'd be proper fucked without insurance.
Probability works in the long run. If I bet you a dollar on a coin flip, my expected return is $0.50, but I will not get $0.50 - I will either get $1.00, or zilch.
Besides, when the insurance company loses the house-on-fire bet, they lose some money. When I lose the house-on-fire bet, I lose everything I own if I'm lucky.
Probability works in the long run. If I bet you a dollar on a coin flip, my expected return is $0.50, but I will not get $0.50 - I will either get $1.00, or zilch.
Besides, when the insurance company loses the house-on-fire bet, they lose some money. When I lose the house-on-fire bet, I lose everything I own if I'm lucky.
You're right of course, but the reason I don't invest the money myself is mostly because I do not have the skillset to do so as effectively as the insurance company, nor do I have the time to put into learning how to properly invest money (including diversification) such that it does grow as I would need it to in order to be useful as an insurance policy.
I pay the insurance company extra to take on that risk of non-appreciating value for me (and maybe to do so more efficiently than I could, so that I actually pay less).
I pay the insurance company extra to take on that risk of non-appreciating value for me (and maybe to do so more efficiently than I could, so that I actually pay less).
> You're right of course, but the reason I don't invest the money myself is mostly because I do not have the skillset to do so as effectively as the insurance company ...
That's what the insurance companies say -- you can't possibly invest the money as well as they can. But you can -- just put the payments into a market index fund, a fund that tracks a market indicator like the DJIA. Such funds have almost no, or no, overhead because no one has to decide anything -- such a fund grows in step with the market indicator that it tracks. And guess what? There are very few mutual funds that do as well as a bonehead market index fund, one in which there's no fund manager to screw things up and charge you for the privilege. Here's why:
http://en.wikipedia.org/wiki/Efficient-market_hypothesis
Second reason -- it's true that insurance companies invest your payments wisely, but it's not true that you benefit from their ability to invest your money. Only their stockholders benefit.
> I pay the insurance company extra to take on that risk of non-appreciating value for me (and maybe to do so more efficiently than I could, so that I actually pay less).
Not if the insurance company makes a profit. And most do, with your money.
That's what the insurance companies say -- you can't possibly invest the money as well as they can. But you can -- just put the payments into a market index fund, a fund that tracks a market indicator like the DJIA. Such funds have almost no, or no, overhead because no one has to decide anything -- such a fund grows in step with the market indicator that it tracks. And guess what? There are very few mutual funds that do as well as a bonehead market index fund, one in which there's no fund manager to screw things up and charge you for the privilege. Here's why:
http://en.wikipedia.org/wiki/Efficient-market_hypothesis
Second reason -- it's true that insurance companies invest your payments wisely, but it's not true that you benefit from their ability to invest your money. Only their stockholders benefit.
> I pay the insurance company extra to take on that risk of non-appreciating value for me (and maybe to do so more efficiently than I could, so that I actually pay less).
Not if the insurance company makes a profit. And most do, with your money.
Those are great points (especially the market-indicator fund which does the work for you). That's still the kind of thing which you would need to bootstrap enough of a nest egg to protect against the difference in risk between little ol' me and the Big Insurance Co.
Once you have enough money to protect yourself against one early disaster then you could shift over completely to saving up for self-insurance. I'm not there yet though :) I suppose it's like they say, you need to have money to make money.
Once you have enough money to protect yourself against one early disaster then you could shift over completely to saving up for self-insurance. I'm not there yet though :) I suppose it's like they say, you need to have money to make money.
Additionally, if the incident upon which you need to make a claim happens fairly early in the life of the policy, it's entirely worth it.
> Additionally, if the incident upon which you need to make a claim happens fairly early in the life of the policy, it's entirely worth it.
Yes, but the advice to self-insure is based on the average outcome, not the exception. Insurance companies aren't profitable in spite of the lucky few whose claims take place quickly, but because of the vast majority for whom this isn't true. And insurance companies are very profitable.
Yes, but the advice to self-insure is based on the average outcome, not the exception. Insurance companies aren't profitable in spite of the lucky few whose claims take place quickly, but because of the vast majority for whom this isn't true. And insurance companies are very profitable.
If you're writing thousands of policies, of course statistically you're going to profit because not all of them will claim before it has paid for itself. Once you pay the first claim, you've already collected 999 premiums at least once. But if you self-insure, you're only writing one policy, which puts all the risk back into it.
If you own 1000 or more mortgage-free rental houses perhaps you could consider self-insuring.
If that one mortgage-free house is the one you live in, chances are good that it's less painful to pay say 1/500th of the structure's value (don't include the land) per year to insure it and its contents against fire, theft, storm damage, liability, etc, than to take a hit from any of these and have to pay out of pocket. For perspective, property taxes are probably 4-10x more than insurance and you're stuck with those forever.
If that one mortgage-free house is the one you live in, chances are good that it's less painful to pay say 1/500th of the structure's value (don't include the land) per year to insure it and its contents against fire, theft, storm damage, liability, etc, than to take a hit from any of these and have to pay out of pocket. For perspective, property taxes are probably 4-10x more than insurance and you're stuck with those forever.
The primary reason to have homeowners or auto insurance is not replacement, it is liability.
If a child plays in your yard and dies from a fall, or rusty nail, or if your neighbor slips during a party and breaks their hip, you could conceivably be sued for a whole lot more than just the replacement value of your house. Even if it is just a nuisance suit, it could take a lot of lawyer time (money) to make it go away.
I insure for liability; the replacement benefit is almost a bonus.
If a child plays in your yard and dies from a fall, or rusty nail, or if your neighbor slips during a party and breaks their hip, you could conceivably be sued for a whole lot more than just the replacement value of your house. Even if it is just a nuisance suit, it could take a lot of lawyer time (money) to make it go away.
I insure for liability; the replacement benefit is almost a bonus.
Poorly worded, I meant that if you wish to insure it, you must insure it privately. Thanks for pointing out the balderdash.
It was just an excuse to jump onto one of my favorite soapboxes. But if you can edit the article, by all means do it -- I don't like to see insurance portrayed as mandatory, or the obvious action of a responsible person. That's only true sometimes, and most people can't say when that time is.
A classic scene, when a retailer is offering one of those useless electronic service plans: customer says, "Do I benefit from this offer?". Salesman: "Absolutely!". Customer: "Then why are you offering it to me?"
A classic scene, when a retailer is offering one of those useless electronic service plans: customer says, "Do I benefit from this offer?". Salesman: "Absolutely!". Customer: "Then why are you offering it to me?"
I can corroborate your conjecture somewhat. My mother bought a seven bedroom(!) home from a slum landlord. He used to buy big old homes in pre-gentrification neighbourhoods and chop them into tiny apartments.
Insurers charge a lot extra for such homes because of the neighbourhoods and the supposed high risk of MURBs combined with the older construction.
So once he hit his sixth home, he stopped buying insurance and started putting money into a pool of his own. Over the years he had, in fact, needed to draw on it for things that would have been covered by insurance, but he felt that even if he broken even, the paperwork required for spending your own money is a lot easier, you just write the cheque :-)
Insurers charge a lot extra for such homes because of the neighbourhoods and the supposed high risk of MURBs combined with the older construction.
So once he hit his sixth home, he stopped buying insurance and started putting money into a pool of his own. Over the years he had, in fact, needed to draw on it for things that would have been covered by insurance, but he felt that even if he broken even, the paperwork required for spending your own money is a lot easier, you just write the cheque :-)
The slumlord business model works because he's raking in guaranteed payments from the government (60-75% of those apartments are directly subsidized), and he doesn't give a shit about the buildings.
So his liability is basically limited to shoring the place up enough so that the Social Services/Public Housing people will continue writing checks, and covering the costs of emergency demolition when the house burns or falls in.
So his liability is basically limited to shoring the place up enough so that the Social Services/Public Housing people will continue writing checks, and covering the costs of emergency demolition when the house burns or falls in.
That was not the case for this particular individual in Toronto.
There are situations where a course of action is in both parties best interests.
"They're such high risk, that no actuary will quote them a reasonable price."
That is just plain wrong.
The reason it's hard to insure people on a flood plain is not that they are high risk. It's because the risk of flood is too statistically dependent: if you get flooded, your closest 1000 neighbors probably also got flooded. Unless you are a very large insurer (to the point bailing out ten thousand homes is just another day at the office), it's just really hard to hedge that risk. Same thing for earthquakes.
Insurance works best on independent risks: car accidents, major medical events, lawsuits, even fires.
"The prevailing thought is, when nature strikes, the government must bail people out."
So the author's claim is essentially that the people of Canada want to subsidize the risky lifestyle of people on flood plains?
I guess it's probably true to a degree; people prefer to have costs hidden from them by indirection. But that doesn't mean that it makes sense economically.
What might be a better analogy is flood insurance and insuring the health of people with unhealthy lifestyles. Do we want to subsidize people who eat junk food all the time and never exercise? For the most part, we are (in US and Canada, at least), but I don't think that's a good idea, either.
That is just plain wrong.
The reason it's hard to insure people on a flood plain is not that they are high risk. It's because the risk of flood is too statistically dependent: if you get flooded, your closest 1000 neighbors probably also got flooded. Unless you are a very large insurer (to the point bailing out ten thousand homes is just another day at the office), it's just really hard to hedge that risk. Same thing for earthquakes.
Insurance works best on independent risks: car accidents, major medical events, lawsuits, even fires.
"The prevailing thought is, when nature strikes, the government must bail people out."
So the author's claim is essentially that the people of Canada want to subsidize the risky lifestyle of people on flood plains?
I guess it's probably true to a degree; people prefer to have costs hidden from them by indirection. But that doesn't mean that it makes sense economically.
What might be a better analogy is flood insurance and insuring the health of people with unhealthy lifestyles. Do we want to subsidize people who eat junk food all the time and never exercise? For the most part, we are (in US and Canada, at least), but I don't think that's a good idea, either.
> They're such high risk, that no actuary will quote them a reasonable price.
That makes sense. There is such a high chance of the insurer losing out on flood insurance money, that no one would want to buy flood insurance.
> Private insurers are unapologetic about this: The prevailing thought is, when nature strikes, the government must bail people out. > ...the "free market" doesn't work properly when it comes to flood plains...
Let me get this straight. The author states that the free market fails when it comes to flood insurance, but in the next breath states why government is the problem. Private insurers can't possibly compete with a free service provided by taxation. If the government wasn't guaranteed to bail people out, then they would probably buy flood insurance in droves (or leave because, like the author said, it's expensive to live in a high-risk area like a flood plain), therefore driving the cost down. All of this could happen without government intervention. Furthermore, so many people have moved there because government intervention prevented the price system could not reflect the high risk of floods.
I really don't see how to author can blame the free market for the lack of flood insurance when it is the government mucking up the price system.
That makes sense. There is such a high chance of the insurer losing out on flood insurance money, that no one would want to buy flood insurance.
> Private insurers are unapologetic about this: The prevailing thought is, when nature strikes, the government must bail people out. > ...the "free market" doesn't work properly when it comes to flood plains...
Let me get this straight. The author states that the free market fails when it comes to flood insurance, but in the next breath states why government is the problem. Private insurers can't possibly compete with a free service provided by taxation. If the government wasn't guaranteed to bail people out, then they would probably buy flood insurance in droves (or leave because, like the author said, it's expensive to live in a high-risk area like a flood plain), therefore driving the cost down. All of this could happen without government intervention. Furthermore, so many people have moved there because government intervention prevented the price system could not reflect the high risk of floods.
I really don't see how to author can blame the free market for the lack of flood insurance when it is the government mucking up the price system.
No, the point is - flood insurance (on a floodplain) is so expensive people simply don't get it. You can say people should leave if they can't afford it, or they should suck it up and buy it, but it's not going to happen. The USA has the same problem - you couldn't get people to move from New Orleans (until they were actually washed away), San Francisco (an earthquake zone) or Seattle (there's a massive tsunami waiting to go off there any time in the next millennia).
People are stupid. They settle in dangerous areas, then the government will be forced to bail them out. It's not 100% efficient, but the alternatives (letting people suffer, or draconian regulations like compulsory flood insurance or strict zoning laws) aren't politically acceptable. And the costs of the government insuring people just isn't so high that it's completely unacceptable - especially when you consider the economic cost of them not covering people (e.g. homeless people clogging up emergency rooms because they couldn't get their cough looked at when it was simply a mild case of pneumonia).
People are stupid. They settle in dangerous areas, then the government will be forced to bail them out. It's not 100% efficient, but the alternatives (letting people suffer, or draconian regulations like compulsory flood insurance or strict zoning laws) aren't politically acceptable. And the costs of the government insuring people just isn't so high that it's completely unacceptable - especially when you consider the economic cost of them not covering people (e.g. homeless people clogging up emergency rooms because they couldn't get their cough looked at when it was simply a mild case of pneumonia).
People shouldn't have to evaluate the risk involved in living anywhere, that is the job of actuators. Their evaluation is presented to consumers through the price system.
If the government didn't bail out homeowners who didn't have insurance, then the risk would be reflected in the price of insurance, and a potential homeowner can then easily compare the utility of living in that location relative to the total cost of owning the home versus any other location. As I said, insurance companies don't even try to offer risky coverage like that because they are competing with bailouts based on compulsory taxation (they are competing with a "free" service). When the government interferes in this case, the consumer is falsely led to believe that the cost of living in that area is lower than it actually is, because they don't have to pay for insurance. Therefore, more people move there than can afford it, and more people need to be bailed out by the government when disaster strikes. It's a vicious cycle.
If the government didn't bail out homeowners who didn't have insurance, then the risk would be reflected in the price of insurance, and a potential homeowner can then easily compare the utility of living in that location relative to the total cost of owning the home versus any other location. As I said, insurance companies don't even try to offer risky coverage like that because they are competing with bailouts based on compulsory taxation (they are competing with a "free" service). When the government interferes in this case, the consumer is falsely led to believe that the cost of living in that area is lower than it actually is, because they don't have to pay for insurance. Therefore, more people move there than can afford it, and more people need to be bailed out by the government when disaster strikes. It's a vicious cycle.
actuators
I think you mean "actuaries". :-) Good post.
I think you mean "actuaries". :-) Good post.
A well written article but it seems mostly like a re-hash of the basic argument for government provided healthcare, not something addressing large, pressing problems facing implementations of public healthcare. I'll be the first to advocate the right to be treated, but this needs to be done extremely carefully.
For example:
- Government is notoriously inefficient. How can we fix government bureaucracy in a sector that requires speed ("Can we operate now?") and offers lean margins?
- Modern insurance companies pay top dollar for mathematical modeling and financial services. Will/Can the government do this?
- Does a morbidly obese person qualify for a life-saving liposuction on the tax-payers dime?
- Do you perform life saving abortions on the tax-payers dime?
- Do you tax progressively based upon risk and past history? If yes, does that mean that the poor are unfairly taxed vs. the rich since the rich have better quality care? If not, should someone who is a health nut be taxed the same as those who dismiss their body?
Private companies can throw away people's morals, prejudices, philosophies. If you don't like it, don't buy it. But once you introduce government (and something mandatory) you encounter issues that were never even remotely related before.
A lot more needs to be discussed on this topic than just "it's like flood insurance".
Edit: Formatting
For example:
- Government is notoriously inefficient. How can we fix government bureaucracy in a sector that requires speed ("Can we operate now?") and offers lean margins?
- Modern insurance companies pay top dollar for mathematical modeling and financial services. Will/Can the government do this?
- Does a morbidly obese person qualify for a life-saving liposuction on the tax-payers dime?
- Do you perform life saving abortions on the tax-payers dime?
- Do you tax progressively based upon risk and past history? If yes, does that mean that the poor are unfairly taxed vs. the rich since the rich have better quality care? If not, should someone who is a health nut be taxed the same as those who dismiss their body?
Private companies can throw away people's morals, prejudices, philosophies. If you don't like it, don't buy it. But once you introduce government (and something mandatory) you encounter issues that were never even remotely related before.
A lot more needs to be discussed on this topic than just "it's like flood insurance".
Edit: Formatting
I think those are an interesting set of questions, but for the most part easily answered by "What does the law currently say?"
- Public health care has absolutely no say on the speed with which a doctor can decide whether life saving surgery is required. In fact I would imagine that knowing that the surgery will be paid for regardless of whether the patient has a job or not might make this decision faster.
- The government pays for top end mathematical talent in other sectors (security) so it stands to reason that if it were necessary, they could in health care as well. Again though, removing the private insurance part of the equation would probably remove the need.
- Obviously yes, just like any other person who requires surgery to live.
- Again, obviously yes. Current laws allowing abortions make this a non-issue. I understand some people are morally or religiously opposed to abortion, but we are governed by the laws of the society we live in. If that is a problem the answer is to change those laws, not to ignore them.
-There are any number of taxing schemes that could subsidize public healthcare but I have never seen one that introduced a progressive tax based on health history (kinda defeats the point?). I would imagine that if the majority of the other countries in the first world can figure this one out, the US probably could too.
I think questions like these are intentionally meant to bring up emotional responses and generate controversy around what could be a really simple decision (either way).
- Public health care has absolutely no say on the speed with which a doctor can decide whether life saving surgery is required. In fact I would imagine that knowing that the surgery will be paid for regardless of whether the patient has a job or not might make this decision faster.
- The government pays for top end mathematical talent in other sectors (security) so it stands to reason that if it were necessary, they could in health care as well. Again though, removing the private insurance part of the equation would probably remove the need.
- Obviously yes, just like any other person who requires surgery to live.
- Again, obviously yes. Current laws allowing abortions make this a non-issue. I understand some people are morally or religiously opposed to abortion, but we are governed by the laws of the society we live in. If that is a problem the answer is to change those laws, not to ignore them.
-There are any number of taxing schemes that could subsidize public healthcare but I have never seen one that introduced a progressive tax based on health history (kinda defeats the point?). I would imagine that if the majority of the other countries in the first world can figure this one out, the US probably could too.
I think questions like these are intentionally meant to bring up emotional responses and generate controversy around what could be a really simple decision (either way).
I'm really not meaning to bring up "emotional responses", I'm merely trying to give some people with different opinions a voice.
Also, you seem to think I'm advocating we do not perform life-threatening procedures, which I'm not. I'm questioning who pays for them. Does the public, including those who find abortion morally reprehensible, pay for those abortions? Does the public pay for a liposuction that could have been avoided with diet and exercise?
People seem to forget that this isn't a question of doing procedures or not, this is about who foots the bill for that procedure.
Also, you seem to think I'm advocating we do not perform life-threatening procedures, which I'm not. I'm questioning who pays for them. Does the public, including those who find abortion morally reprehensible, pay for those abortions? Does the public pay for a liposuction that could have been avoided with diet and exercise?
People seem to forget that this isn't a question of doing procedures or not, this is about who foots the bill for that procedure.
> Does the public pay for a liposuction that could have been avoided with diet and exercise?
Does the public pay for emergency treatment of someone who's in a car accident because they were driving drunk? Right now we do, directly or indirectly. If someone doesn't have insurance, emergency care is still performed without regard to whether it's the recipient's fault that they need it. If they can't pay the bill it is passed along to other patients in the form of higher prices.
> Does the public, including those who find abortion morally reprehensible, pay for those abortions?
Right now the public, including those who find war morally reprehensible, are forced to pay for wars. I think the anti-abortionists can manage. If you find it morally reprehensible to perform an abortion to save the mother's life, then if you are ever in the situation where you'll die if you don't get an abortion, you are free to refuse the procedure. Your personal moral code does not give you the right to choose whether strangers live or die.
Does the public pay for emergency treatment of someone who's in a car accident because they were driving drunk? Right now we do, directly or indirectly. If someone doesn't have insurance, emergency care is still performed without regard to whether it's the recipient's fault that they need it. If they can't pay the bill it is passed along to other patients in the form of higher prices.
> Does the public, including those who find abortion morally reprehensible, pay for those abortions?
Right now the public, including those who find war morally reprehensible, are forced to pay for wars. I think the anti-abortionists can manage. If you find it morally reprehensible to perform an abortion to save the mother's life, then if you are ever in the situation where you'll die if you don't get an abortion, you are free to refuse the procedure. Your personal moral code does not give you the right to choose whether strangers live or die.
I don't think you are advocating anything, so there is nothing personal here, just for the record.
I think that we need to divorce ourselves from the specific procedures, and just talk about life saving health care. If we were to adopt public healthcare, the public would pay for life saving health care that is legally allowed. Then we can apply that framework to specific procedures, which for both your examples means yes, it would be done.
You would not be paying specifically for the girl down the street to have an abortion. You would be paying your taxes, some small part of which may be applied to save her life in the event it is necessary, using whatever legal procedures are required.
While you are right, that this is in part about who foots the bill, the other thing it is about is helping people live healthy lives without going bankrupt, which is a uniquely American problem in the first world.
I think that we need to divorce ourselves from the specific procedures, and just talk about life saving health care. If we were to adopt public healthcare, the public would pay for life saving health care that is legally allowed. Then we can apply that framework to specific procedures, which for both your examples means yes, it would be done.
You would not be paying specifically for the girl down the street to have an abortion. You would be paying your taxes, some small part of which may be applied to save her life in the event it is necessary, using whatever legal procedures are required.
While you are right, that this is in part about who foots the bill, the other thing it is about is helping people live healthy lives without going bankrupt, which is a uniquely American problem in the first world.
Now that you explain it like that, I see it's impossible to provide cost-effective health care for a nation of people with anything except staggering inefficiencies. I don't know why this isn't obvious to me, sitting here in Toronto.
I clearly haven't thought this through.
;-)
I clearly haven't thought this through.
;-)
I can't tell if you are being sarcastic or not, but I'm just going to respond as if you are.
Could it be impossible to provide cost effective insurance against "Acts of God" aka "Nature" to a nation of people without staggering efficiencies? I think it's a very real possibility that this could be a pipe dream right now for a country the size of the United States. Why is it so hard to believe that we may not ever be able to mitigate Nature?
If you would like to draw comparisons between the US and Canada, the U.S. has 315 million people with a 34% obesity rate. Canada has 33 million people with a 24% obesity rate. That's a difference of ~99,231,174 obese people. If you notice, that difference is actually three times larger than Canada's entire population.
I highly doubt we can apply very much of the implementation from Canada to the United States. The wheel very well may need to be re-thought. This is the equivalent of scaling any startup. Anyone can write a twitter clone in a couple hours, it's really not that hard. However, it takes some serious thinking, engineering, thought and complexity to scale that simple CRUD app to millions of users. Your comment seems rather like the owner of a small business complaining that the CEO of a Fortune 500 company can't control his employees as well as he can.
Could it be impossible to provide cost effective insurance against "Acts of God" aka "Nature" to a nation of people without staggering efficiencies? I think it's a very real possibility that this could be a pipe dream right now for a country the size of the United States. Why is it so hard to believe that we may not ever be able to mitigate Nature?
If you would like to draw comparisons between the US and Canada, the U.S. has 315 million people with a 34% obesity rate. Canada has 33 million people with a 24% obesity rate. That's a difference of ~99,231,174 obese people. If you notice, that difference is actually three times larger than Canada's entire population.
I highly doubt we can apply very much of the implementation from Canada to the United States. The wheel very well may need to be re-thought. This is the equivalent of scaling any startup. Anyone can write a twitter clone in a couple hours, it's really not that hard. However, it takes some serious thinking, engineering, thought and complexity to scale that simple CRUD app to millions of users. Your comment seems rather like the owner of a small business complaining that the CEO of a Fortune 500 company can't control his employees as well as he can.
Well, here's the thing. I agree with both of us.
I know the Canadian system works. You agree that it works for Canada, but you say there are differences between the countries. I agree with that too.
I explain it to myself the same way I explain people living in Winnipeg. People aren't perfectly rational utility-seekers. They won't get up and move away from Winnipeg to avoid a flood. Likewise, they won't flood across the border into Canada to get our health care. You can say there aren't enough jobs or something, but the fact is we take as many immigrants as we possibly can these days, we'd love to have lots of Americans.
But they don't come to Canada. So one explanation is that people aren't perfectly rational in the sense that would drive them to seek out better health care or to move away from Winnipeg. Once you accept that, you can accept that people might not like the idea of spreading the cost of health care across a population through taxation. Never mind if I think it's rational, I also think it's rational to move off a flood plain.
Or any of a dozen other explanations for why it might not work in the US. It might not! I honestly don't think private insurance works very well, but I can readily accept the argument that public insurance might be worse in the US.
Once you accept that we sweat and love and sing patriotic songs and write mean things about each other on the Internet and all these other human things, you have to accept that the best we can hope from a blog post is to provoke questions rather than provide answers.
I know the Canadian system works. You agree that it works for Canada, but you say there are differences between the countries. I agree with that too.
I explain it to myself the same way I explain people living in Winnipeg. People aren't perfectly rational utility-seekers. They won't get up and move away from Winnipeg to avoid a flood. Likewise, they won't flood across the border into Canada to get our health care. You can say there aren't enough jobs or something, but the fact is we take as many immigrants as we possibly can these days, we'd love to have lots of Americans.
But they don't come to Canada. So one explanation is that people aren't perfectly rational in the sense that would drive them to seek out better health care or to move away from Winnipeg. Once you accept that, you can accept that people might not like the idea of spreading the cost of health care across a population through taxation. Never mind if I think it's rational, I also think it's rational to move off a flood plain.
Or any of a dozen other explanations for why it might not work in the US. It might not! I honestly don't think private insurance works very well, but I can readily accept the argument that public insurance might be worse in the US.
Once you accept that we sweat and love and sing patriotic songs and write mean things about each other on the Internet and all these other human things, you have to accept that the best we can hope from a blog post is to provoke questions rather than provide answers.
> This actually makes sense, because the "free market" doesn't work properly when it comes to flood plains.
"This item I want isn't cheap" does not mean that markets don't work "properly", except where you define "properly" to mean whatever you want to happen.
"This item I want isn't cheap" does not mean that markets don't work "properly", except where you define "properly" to mean whatever you want to happen.
Yes, but in most cases private insurance companies do not charge high rates for flood insurance, they simply refuse to provide flood insurance. The issue for them is that floods tend to affect EVERYONE in an area (or no one at all) and so the losses due to claims cannot be averaged over a large customer base and thereby kept consistent from year to year. This creates a kind of risk that wise insurance companies will not be willing to take on.
That is not to say that there is NO price: as an extreme case, an insurance company would be willing to sell a policy for flood insurance for an annual price of the full replacement price of the property. (Because they'd be guaranteed a zero or positive return in the first year.) But that's not what we traditionally mean by "insurance", which involves the concept of sharing risk over a broad pool so that each member pays for the average cost rather than risking having a high cost.
That is not to say that there is NO price: as an extreme case, an insurance company would be willing to sell a policy for flood insurance for an annual price of the full replacement price of the property. (Because they'd be guaranteed a zero or positive return in the first year.) But that's not what we traditionally mean by "insurance", which involves the concept of sharing risk over a broad pool so that each member pays for the average cost rather than risking having a high cost.
I think what he means is that the people living on the flood plain want protection from risk at below the price it costs to provide that protection. The only way to do this is with taxpayer money.
No, the problem is that the insurance company can't average out this risk. Going without insurance is an all-or-nothing proposition - either you lose your house, or you lose nothing. By contrast, insurance companies average this out - they lose X% of houses each year, and charge enough to make a profit.
But insurance in a flood plain is different. The insurance company can't average out the risk - either they lose all of the houses they're insuring, or none of them. Thus, they can't provide any averaging benefit to the consumer - they have to charge an exorbitant amount to ensure they don't go bankrupt if the flood happens the year they open their doors.
The government _can_ handle this, because they are, in a sense, diversified across industries.
But insurance in a flood plain is different. The insurance company can't average out the risk - either they lose all of the houses they're insuring, or none of them. Thus, they can't provide any averaging benefit to the consumer - they have to charge an exorbitant amount to ensure they don't go bankrupt if the flood happens the year they open their doors.
The government _can_ handle this, because they are, in a sense, diversified across industries.
That's the correct conclusion.
Now one has to ask why someone who didn't make the mistake of living in a flood plain has to pay for those who choose to continue to take that risk.
This attitude is all about destroying the notion of personal responsibility. Let everyone else bail me out.
Now one has to ask why someone who didn't make the mistake of living in a flood plain has to pay for those who choose to continue to take that risk.
This attitude is all about destroying the notion of personal responsibility. Let everyone else bail me out.
This is a straw man. The point of the article is health insurance, and no one chooses to break their leg, get burned in a fire, or develop cancer.
But I'll take you up on it anyway, because it's still BS. How about the people in tornado alley? Or hurricane alley? Or everyone in California with all those earthquakes? Or mudslides or forest fires or or or... can you tell me no one in your state/province/whatever has ever had a natural disaster destroy their home?
But I'll take you up on it anyway, because it's still BS. How about the people in tornado alley? Or hurricane alley? Or everyone in California with all those earthquakes? Or mudslides or forest fires or or or... can you tell me no one in your state/province/whatever has ever had a natural disaster destroy their home?
> The point of the article is health insurance, and no one chooses to break their leg, get burned in a fire, or develop cancer.
I'm not sure if you're kidding. People do indeed choose to go rock climbing, smoke in bed, and smoke, period. These things are statistically very related to choosing to have accidents and get cancer. One would expect that removing some financial costs of these activities would cause some increase in those participating.
You might say that you'd be fine with higher rates of accidents and cancer as long as the risk is spread, but it's not a straw man.
I'm not sure if you're kidding. People do indeed choose to go rock climbing, smoke in bed, and smoke, period. These things are statistically very related to choosing to have accidents and get cancer. One would expect that removing some financial costs of these activities would cause some increase in those participating.
You might say that you'd be fine with higher rates of accidents and cancer as long as the risk is spread, but it's not a straw man.
I'm not kidding, are you?
You think that if the thought of being burned over 90% of their body isn't stopping someone from smoking in bed... that the thought a big hospital bill will do the trick?
Or that they're not afraid of breaking every bone in their body when rock climbing, but boy, that doctor bill sure would be steep, so how about a nice game of cards? Seriously?
You think that if the thought of being burned over 90% of their body isn't stopping someone from smoking in bed... that the thought a big hospital bill will do the trick?
Or that they're not afraid of breaking every bone in their body when rock climbing, but boy, that doctor bill sure would be steep, so how about a nice game of cards? Seriously?
1. Providing government insurance is somewhat equivalent to having private insurances that you buy into right before birth of a new child. The rates would be very low (assuming you agree to pay the monthly fee consistently for the entire life of the person, similar to taxes) despite full coverage for life.
Unfortunately, many people would not opt for this coverage and would prefer to wait until they need good insurance to opt in. Then they call insurance companies greedy or unethical for not providing them inexpensive insurance.
Somehow paying a little extra in taxes doesn't seem as bad as paying for the insurance. Although for most people, putting the cost to the taxpayer means that people with more money end up paying for them. So in reality, the most significant effect of government-sponsored healthcare, etc, is to have those with more money provide coverage for those with less.
2. The other effect is that buying into insurance makes people less risk-averse. For instance, they would be more likely to live on a flood plain if they know they will be compensated for damage to their house. This is a net negative for society since it is wasteful of resources. Someone who doesn't want to pay the extra taxes and instead live a more risk-averse lifestyle doesn't have that choice when they are required to pay taxes that cover insurance.
Unfortunately, many people would not opt for this coverage and would prefer to wait until they need good insurance to opt in. Then they call insurance companies greedy or unethical for not providing them inexpensive insurance.
Somehow paying a little extra in taxes doesn't seem as bad as paying for the insurance. Although for most people, putting the cost to the taxpayer means that people with more money end up paying for them. So in reality, the most significant effect of government-sponsored healthcare, etc, is to have those with more money provide coverage for those with less.
2. The other effect is that buying into insurance makes people less risk-averse. For instance, they would be more likely to live on a flood plain if they know they will be compensated for damage to their house. This is a net negative for society since it is wasteful of resources. Someone who doesn't want to pay the extra taxes and instead live a more risk-averse lifestyle doesn't have that choice when they are required to pay taxes that cover insurance.
It's even worse when the government subsidizes flood insurance. Then it's not just adverse selection, but the whole premise of insurance--pay a premium to mitigate risk--is gone, since it's not even profitable anymore, leaving us with a needless subsidized incentive to waste public funds in the long run.
#2 is a fallacy, which is what the original author had said. Look at all the people buying mansions on the coast of Florida that then get wiped out by hurricanes. Humans are very bad at gauging long-term risk.
I am sure that there are cases in which people are careless despite great financial risk. But there are also many cases of people being careless as a direct result of insurance coverage. This is most obvious in insurance fraud, where people actually intentionally damage their property in order to get a payout. But more commonly, people simply opt not to pay for garage parking because they have theft insurance on their car or motorcycle.
Those mansions have their insurance subsidized by the federal government. The only foolishness is institutional--to the homeowner, the government just buys you a new mansion every few years for below cost. It's a fantastic deal for them.
One question that no one asks: why do we insist on paying for healthcare with insurance in the first place? Imagine a world where everyone paid for health expenses out of pocket, where there was competition and price transparency for all procedures which means much lower prices (instead of prices being driven up by government-subsidized plans), and most importantly, doctors had to answer to us as consumers instead of insurance companies?
I think you need to first state what you're trying to accomplish.
Is lower prices an end unto itself? if so, I doubt that you will get it from the "free market." It's too inefficient. When you slip and break your leg, you can't take your time shopping around for the lowest price care. You can't buy a lung transplant when it's cheap, save it, and use it when you need it.
Some people simply want people to pay their own way for ideological reasons. I can understand that without agreeing with it.
Is lower prices an end unto itself? if so, I doubt that you will get it from the "free market." It's too inefficient. When you slip and break your leg, you can't take your time shopping around for the lowest price care. You can't buy a lung transplant when it's cheap, save it, and use it when you need it.
Some people simply want people to pay their own way for ideological reasons. I can understand that without agreeing with it.
Calling the "free market" inefficient is the most absurd thing I've heard in at least a week.
"Free Markets" clearly aren't the answer for everything, but they are when efficiency is the primary goal. Laws and regulations aren't there to promote efficiency. They are there, ideally, to promote safety. In my experience, the overlap of safety and efficiency is vanishingly small. Would that it were not.
In every situation, we need some balance of efficiency and safety.
Yes, it's true, when you are having a heart attack, you probably don't want to spend time shopping around. That is exactly what "insurance" is for.
When you have a cold and you go to the doctor, that is a waste of a limited resource (the doctor's time specifically). If you as a consumer had to bear the full brunt of the cost of seeing a doctor for non-catastrophic issues, you'd think twice about going over a cold.
That doctor would then be able to take on more patients because their time wouldn't be wasted on trivial things. This is more efficient.
The flip side, is that the expense of the doctor's office dealing with insurance companies would absolutely be reduced. That's an immediate cost reduction. The demand for arbitrary doctor services would be reduced (by virtue of everyone with a sniffle not immediately heading to the doctor).
Simultaneously, doctor's would be able to reach more patients at a lower cost.
Prices for everyday type treatment would go down.
When you disconnect the scarcity of a resource from its price, you wreak havoc on the system. The way we (in the US) use health insurance, it's more like "prepaid medical services" than what insurance was meant for. The problem is that you have disconnected the scarcity of the doctor's time and service with the price of that service. It artificially inflates demand on that doctor's time, because hell, you've already paid the premium this month, if you don't go see the doctor for a cold, you are wasting money.
And that's true. You have wasted money, but going to the doctor for that cold just wastes their time, so now you've doubled down on waste and inefficiency.
"Free Markets" clearly aren't the answer for everything, but they are when efficiency is the primary goal. Laws and regulations aren't there to promote efficiency. They are there, ideally, to promote safety. In my experience, the overlap of safety and efficiency is vanishingly small. Would that it were not.
In every situation, we need some balance of efficiency and safety.
Yes, it's true, when you are having a heart attack, you probably don't want to spend time shopping around. That is exactly what "insurance" is for.
When you have a cold and you go to the doctor, that is a waste of a limited resource (the doctor's time specifically). If you as a consumer had to bear the full brunt of the cost of seeing a doctor for non-catastrophic issues, you'd think twice about going over a cold.
That doctor would then be able to take on more patients because their time wouldn't be wasted on trivial things. This is more efficient.
The flip side, is that the expense of the doctor's office dealing with insurance companies would absolutely be reduced. That's an immediate cost reduction. The demand for arbitrary doctor services would be reduced (by virtue of everyone with a sniffle not immediately heading to the doctor).
Simultaneously, doctor's would be able to reach more patients at a lower cost.
Prices for everyday type treatment would go down.
When you disconnect the scarcity of a resource from its price, you wreak havoc on the system. The way we (in the US) use health insurance, it's more like "prepaid medical services" than what insurance was meant for. The problem is that you have disconnected the scarcity of the doctor's time and service with the price of that service. It artificially inflates demand on that doctor's time, because hell, you've already paid the premium this month, if you don't go see the doctor for a cold, you are wasting money.
And that's true. You have wasted money, but going to the doctor for that cold just wastes their time, so now you've doubled down on waste and inefficiency.
I wont respond to the rest of your response, but it has been pretty clearly demonstrated by people smarter than you or I (at least in their respective professions) that free markets aren't always the most efficient solution to a problem, particularly when the desired solution is not just to come up with a price that is profitable for for the seller.
http://www.basiceconomics.info/market-failures-and-externali...
http://www.basiceconomics.info/market-failures-and-externali...
it has been pretty clearly demonstrated
What has been clearly demonstrated is that free markets don't always reach the optimal solution. That is not the same as saying that governments can do better. In cases where there are market failures and/or externalities, very often there is no way to get to the optimal solution.
The real question is, which has worse failure modes, free markets or governments? I'm going to go with governments on that one.
What has been clearly demonstrated is that free markets don't always reach the optimal solution. That is not the same as saying that governments can do better. In cases where there are market failures and/or externalities, very often there is no way to get to the optimal solution.
The real question is, which has worse failure modes, free markets or governments? I'm going to go with governments on that one.
I guess I would disagree with you on that. Given that the U.S. is basically the only first world country that still has private healthcare and it is typically rated somewhere between 15 and 40 world wide on most healthcare metrics, it seems like a number of countries have figured out a way to do public healthcare better... (and more cheaply)
http://www.businessinsider.com/best-healthcare-systems-in-th... http://en.wikipedia.org/wiki/World_Health_Organization_ranki... http://www.reuters.com/article/2010/06/23/us-usa-healthcare-...
http://www.businessinsider.com/best-healthcare-systems-in-th... http://en.wikipedia.org/wiki/World_Health_Organization_ranki... http://www.reuters.com/article/2010/06/23/us-usa-healthcare-...
it seems like a number of countries have figured out a way to do public healthcare better... (and more cheaply)
"More cheaply" if you only look at health care, perhaps. But not if you look at total government spending:
http://en.wikipedia.org/wiki/Government_spending
But the real point is that all of those numbers have been increasing over time, and will continue to increase until the governments and countries collapse under the deadweight costs of centralized control. And on the way, we get to have laws bought by special interests and government regulations written by the companies that are supposed to be regulated.
"More cheaply" if you only look at health care, perhaps. But not if you look at total government spending:
http://en.wikipedia.org/wiki/Government_spending
But the real point is that all of those numbers have been increasing over time, and will continue to increase until the governments and countries collapse under the deadweight costs of centralized control. And on the way, we get to have laws bought by special interests and government regulations written by the companies that are supposed to be regulated.
I don't see any facts supporting your assertion that the countries will spontaneously collapse due to the size or spending of their governments... What I do see are a long list of countries with higher tax rates, budget surpluses or much smaller deficits than the USA, and much higher ranked healthcare systems (You point at Greece, I will point at Germany, Norway and Sweden. Let's just get that out of the way).
Let's leave it at this, I am not going to say that a public healthcare system (or a single payer system) is the only right way of doing things. What I will say is there are a lot of other countries out there that are able to provide a better health care system through that route while still remaining financially stable.
Maybe that is just not something that is in the cards for the USA though, maybe the trade off is that you have lower taxes, but a lower life expectancy if you are not wealthy.
I certainly am not going to pretend to know all the answers, but I do think refusing to learn from other countries because they are not doing it the "American" way (read: with a free market) would be a silly reason to accept having one of the worst healthcare systems in the first world.
Let's leave it at this, I am not going to say that a public healthcare system (or a single payer system) is the only right way of doing things. What I will say is there are a lot of other countries out there that are able to provide a better health care system through that route while still remaining financially stable.
Maybe that is just not something that is in the cards for the USA though, maybe the trade off is that you have lower taxes, but a lower life expectancy if you are not wealthy.
I certainly am not going to pretend to know all the answers, but I do think refusing to learn from other countries because they are not doing it the "American" way (read: with a free market) would be a silly reason to accept having one of the worst healthcare systems in the first world.
I don't see any facts supporting your assertion that the countries will spontaneously collapse due to the size or spending of their governments...
Soviet Union.
they are not doing it the "American" way (read: with a free market)
The US does not have a free market in health care, and hasn't since at least World War II, when employers started providing health benefits to attract workers because they were unable to offer higher wages (wages were regulated by the government during the war). A free market would mean everyone sees all of the costs of the health care they receive, and weighs the costs against the expected benefits, and only buys health care for which the expected benefits exceed the costs. Nobody that participates in employer-provided health care (which is most workers in the US) does that; the only costs they see are their portion of the premiums and their copays, so they want whatever health care has a benefit to them that exceeds those costs.
The provider side of the US health care system is not a free market either; a person can't just decide to be a provider. Doctors, nurses, x-ray technicians, etc., etc., all have to be licensed by the government. That is supposed to help guarantee that they are competent, but it also helps to keep costs higher by restricting the supply of providers. (To some extent there are now private clinics trying to end-run around this for basic services like blood pressure or cholesterol screening; but they are limited, and mostly serve people who don't have employer-provided insurance.)
In short, the US health care system is not an example of a free market system that achieves less optimal outcomes than a government system; it's an example of a bastardized part-government part-private system that achieves less optimal outcomes (by some metrics--by others, for example wait times for critical surgeries, it achieves better outcomes) than a government system.
Soviet Union.
they are not doing it the "American" way (read: with a free market)
The US does not have a free market in health care, and hasn't since at least World War II, when employers started providing health benefits to attract workers because they were unable to offer higher wages (wages were regulated by the government during the war). A free market would mean everyone sees all of the costs of the health care they receive, and weighs the costs against the expected benefits, and only buys health care for which the expected benefits exceed the costs. Nobody that participates in employer-provided health care (which is most workers in the US) does that; the only costs they see are their portion of the premiums and their copays, so they want whatever health care has a benefit to them that exceeds those costs.
The provider side of the US health care system is not a free market either; a person can't just decide to be a provider. Doctors, nurses, x-ray technicians, etc., etc., all have to be licensed by the government. That is supposed to help guarantee that they are competent, but it also helps to keep costs higher by restricting the supply of providers. (To some extent there are now private clinics trying to end-run around this for basic services like blood pressure or cholesterol screening; but they are limited, and mostly serve people who don't have employer-provided insurance.)
In short, the US health care system is not an example of a free market system that achieves less optimal outcomes than a government system; it's an example of a bastardized part-government part-private system that achieves less optimal outcomes (by some metrics--by others, for example wait times for critical surgeries, it achieves better outcomes) than a government system.
Ahh, "Soviet Union", the answer to every question about the evils of government. I take it that means you don't really want to discuss that point, as "Soviet Union" is hardly and answer, and as I pointed out nearly every other first world country has a "larger" government that the USA, and they are almost all in better financial shape too.
But we have come full circle, and as I mentioned in my first response free markets are not meant to create a solution for problems whose success is not defined by finding the "fair price" for something. In my books, solution that prevents people from being able to obtain/afford healthcare (and lets be clear, no matter how many "inefficiencies" you might eliminate through deregulation, there will always be a segment of the population that cannot afford to pay for healthcare, just like they cannot afford to pay for housing or food) will never be a success.
But this is all a moot discussion. The likelihood of the United States moving further to the left on healthcare is exponentially higher than the likelihood of the industry being deregulated to the point where you scenario starts to be able to realize real benefits. As-such, if a true "free market" healthcare system is not politically palatable for the country, then I think both of us, and the facts, are all in agreement that a single payer or public system would do a much better job than our current "bastardized part-government part-private" system.
But we have come full circle, and as I mentioned in my first response free markets are not meant to create a solution for problems whose success is not defined by finding the "fair price" for something. In my books, solution that prevents people from being able to obtain/afford healthcare (and lets be clear, no matter how many "inefficiencies" you might eliminate through deregulation, there will always be a segment of the population that cannot afford to pay for healthcare, just like they cannot afford to pay for housing or food) will never be a success.
But this is all a moot discussion. The likelihood of the United States moving further to the left on healthcare is exponentially higher than the likelihood of the industry being deregulated to the point where you scenario starts to be able to realize real benefits. As-such, if a true "free market" healthcare system is not politically palatable for the country, then I think both of us, and the facts, are all in agreement that a single payer or public system would do a much better job than our current "bastardized part-government part-private" system.
You're probably right that a true free market health care system is not politically palatable, just like a true free market in any aspect of the economy is not politically palatable. That doesn't mean free markets don't work; it means they're not tried.
free markets are not meant to create a solution for problems whose success is not defined by finding the "fair price" for something
Your definition of a free market is too narrow. Free markets are applicable in any situation where there are scarce resources that need to be allocated. There may not be a "fair" price for health care, but it is certainly a scarce resource that needs to be allocated. There isn't a "fair" price for groceries, computers, etc., but the free market allocates them.
free markets are not meant to create a solution for problems whose success is not defined by finding the "fair price" for something
Your definition of a free market is too narrow. Free markets are applicable in any situation where there are scarce resources that need to be allocated. There may not be a "fair" price for health care, but it is certainly a scarce resource that needs to be allocated. There isn't a "fair" price for groceries, computers, etc., but the free market allocates them.
"Soviet Union" is hardly an answer
Sure it is. Consider: it took the Soviet Union more than 70 years to collapse. Someone who looked at the economic numbers of the Soviet Union in the 1920's, or even in the 1930's, might well have thought they were doing great. But they were trying to centrally manage something that's too complex and diverse to be centrally managed, and it caught up with them. Other countries are trying to do the same thing, and it's going to catch up with them as well. Or perhaps I should say "us" since I live in one of the countries (the US) that's doing this.
Sure it is. Consider: it took the Soviet Union more than 70 years to collapse. Someone who looked at the economic numbers of the Soviet Union in the 1920's, or even in the 1930's, might well have thought they were doing great. But they were trying to centrally manage something that's too complex and diverse to be centrally managed, and it caught up with them. Other countries are trying to do the same thing, and it's going to catch up with them as well. Or perhaps I should say "us" since I live in one of the countries (the US) that's doing this.
> "Free Markets" clearly aren't the answer for everything, but they are when efficiency is the primary goal. Laws and regulations aren't there to promote efficiency. They are there, ideally, to promote safety. In my experience, the overlap of safety and efficiency is vanishingly small. Would that it were not.
I always wonder if people remember the rolling brownouts caused by Enron in the chase for profit. De-regulation did nothing to help keep the lights on in California.
I always wonder if people remember the rolling brownouts caused by Enron in the chase for profit. De-regulation did nothing to help keep the lights on in California.
Insurance is a really terrible way to pay for any commodity. If I paid a fixed price to go to the grocery store every month and get everything I needed off the shelves, the grocery store would go bankrupt. Obviously, insurance works for event that are unlikely, as a way to mitigate risk. But everyone dies eventually. Everyone will need healthcare.
Because of the nature of insurance, it drives up prices, it misaligns incentives, and our particular mode of insurance--subsidized employer-provided insurance--has the added injury of forcing people to stay in their jobs for the sake of their health and limiting mobility.
Yet, not only do we accept insurance as the best way to pay for healthcare today, we just doubled down on it with Obamacare, requiring people who previously weren't in the insurance market to participate.
My solution is to let healthcare be another commodity, like food, where there is widespread competition and choice, and thus lower prices and more transparency.
With your example, it's not like someone makes a choice in emergency care right now either. But at least you could establish a relationship with a hospital ahead of time. How about an app that lets you join a hospital network for emergencies? What about an annuity plan that lets you save up for a lung transplant ahead of time if/when you need it? I don't know what health entrepreneurs would come up with. But there are solutions out there that will never be tried as long as insurance companies have a stranglehold on the health industry.
Because of the nature of insurance, it drives up prices, it misaligns incentives, and our particular mode of insurance--subsidized employer-provided insurance--has the added injury of forcing people to stay in their jobs for the sake of their health and limiting mobility.
Yet, not only do we accept insurance as the best way to pay for healthcare today, we just doubled down on it with Obamacare, requiring people who previously weren't in the insurance market to participate.
My solution is to let healthcare be another commodity, like food, where there is widespread competition and choice, and thus lower prices and more transparency.
With your example, it's not like someone makes a choice in emergency care right now either. But at least you could establish a relationship with a hospital ahead of time. How about an app that lets you join a hospital network for emergencies? What about an annuity plan that lets you save up for a lung transplant ahead of time if/when you need it? I don't know what health entrepreneurs would come up with. But there are solutions out there that will never be tried as long as insurance companies have a stranglehold on the health industry.
You seem to know a lot about the US health insurance market. What percentage of US health spending is driven by this sort of emergency care?
Or is this all theoretical hot wind?
Or is this all theoretical hot wind?
What is theoretical about an article describing how health insurance actually works in an actual country from someone who has actually lived there for nearly all of his actual life?
And I didn't mention the word "US." You did.
And I didn't mention the word "US." You did.
Because people are risk-averse. People would rather pay a little more for a lot less risk. Paying for healthcare out of pocket is incredibly risky. You never know if you're going to be diagnosed with cancer and have to drop $200,000 a year for treatments that will last the rest of your life.
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Simple.
I go to the GP and complain about my chronic backaches. Physical therapy doesn't work, so I need to talk to a neurosurgeon, whose time is worth about $500/hr.
After getting an MRI for $1,000 and paying a radiologist $1,250 to interpret it, it turns out that one of my disks are ruptured, and I am going to require a spinal fusion.
That's a 6-hour surgery that costs about $100k. I make $50k per year. Now what? Do I bankrupt my family, or persevere until I'm rendered paralyzed and on the dole, or buy insurance to cover this sort of event?
I go to the GP and complain about my chronic backaches. Physical therapy doesn't work, so I need to talk to a neurosurgeon, whose time is worth about $500/hr.
After getting an MRI for $1,000 and paying a radiologist $1,250 to interpret it, it turns out that one of my disks are ruptured, and I am going to require a spinal fusion.
That's a 6-hour surgery that costs about $100k. I make $50k per year. Now what? Do I bankrupt my family, or persevere until I'm rendered paralyzed and on the dole, or buy insurance to cover this sort of event?
I think you're missing the point. The reason why it would cost you $100k is twofold: right now out of pocket expenses are deliberately much, much higher to compensate doctors and medical professionals for nonpayments, and medical professionals have no problem gouging their prices for the insurance companies, or using more-expensive-than necessary procedures for the benefit of patients (because after all, we have a massive principal agent problem). Not to mention that insurance encourages wasteful consumption, decimates competition, and misaligns incentives. And the fact that most people get insurance through their place of work such that they are less mobile and less able to negotiate higher pay just makes the situation more bitter.
My solution is to let the price of medicine float with demand and supply, like any other commodity, where it would lower in price with competition and neuter the influence of health insurance lobbyists.
Also, health is always going to be the sort of profession where the best treatment is too expensive for more people to afford. That's just a natural result of innovation. Every new technology--even those we take for granted today--were too expensive for most people to afford when they were introduced. The way that prices come down for these things is through demand and competition, not through government mandates, which provide no incentive to lower prices (another principal agent problem).
My solution is to let the price of medicine float with demand and supply, like any other commodity, where it would lower in price with competition and neuter the influence of health insurance lobbyists.
Also, health is always going to be the sort of profession where the best treatment is too expensive for more people to afford. That's just a natural result of innovation. Every new technology--even those we take for granted today--were too expensive for most people to afford when they were introduced. The way that prices come down for these things is through demand and competition, not through government mandates, which provide no incentive to lower prices (another principal agent problem).
If medicine floated with the cost of supply and demand, then outbreaks and epidemics would be an ethical nightmare and a commercial blessing.
Medical supplies during epidemics always fail to match the huge spike in demand, so the price would rise exponentially. Medication providers would make a fortune while only the rich would receive medication.
Depending how much you want to bend toward conspiracy theories, it would almost be like incentivizing medication providers to cause huge outbreaks.
Medical supplies during epidemics always fail to match the huge spike in demand, so the price would rise exponentially. Medication providers would make a fortune while only the rich would receive medication.
Depending how much you want to bend toward conspiracy theories, it would almost be like incentivizing medication providers to cause huge outbreaks.
Supply and demand doesn't work out too well when the consumer has no bargaining power.
If I'm buying a car, I can walk away if I don't agree with the terms. How does the guy with the broken back do that?
If I am an unconscious or legally incompetent person in the ICU make a rational economic decision about their course of treatment?
If I'm buying a car, I can walk away if I don't agree with the terms. How does the guy with the broken back do that?
If I am an unconscious or legally incompetent person in the ICU make a rational economic decision about their course of treatment?
I've heard this argument before, and, while it seems logical enough, has anyone tried to estimate the cost of various procedures under this sort of system? I tend to believe that healthcare would still be too expensive for most people to afford, but I've never been able to find supporting estimates one way or the other.
> Imagine a world where everyone paid for health expenses out of pocket ...
Very good points. The argument can be made that the existence of health insurance is a major factor in the increase in medical costs over the years. After all, it's not Jane Doe who has to pay for the procedure, it's a large, anonymous insurance company. This reduces the motive to shop for the best deal or ask whether a procedure is actually worth it. It reduces the role of personal responsibility.
Very good points. The argument can be made that the existence of health insurance is a major factor in the increase in medical costs over the years. After all, it's not Jane Doe who has to pay for the procedure, it's a large, anonymous insurance company. This reduces the motive to shop for the best deal or ask whether a procedure is actually worth it. It reduces the role of personal responsibility.
Because then anyone who gets unlucky dies from not being able to afford the exorbitant prices of catastrophic health care, which will never go down enough to be "affordable" to anyone who isn't rich.
Just like the price of cars and computers and telephones never went down?
We've had medical technology for longer than we've had either of those, and health care has gotten more expensive, not less. What does the price of commodity items have to do with the price of life saving services?
That's my point! Because we put so much effort into "fixing" healthcare we drive the price up instead of when we leave commodities like technology largely alone and happily watch the prices go down.
I would worry that a fair market value for healthcare would still be more than most people could afford. The question is, would it be less out of pocket or more than with insurance, which is probably a vague question and one I have no ability to attempt answering. Anecdotally, though, I've found that while the squeeze of my employer's health plan was difficult, having to pay the entire cost of my appendectomy would've been nigh impossible. I can only imagine how much my mother with COPD would have to pay out of pocket.
Everyone thinks that the market value of something will be more than they can afford. So they implement policies that are guaranteed to make the price higher.
Every commodity costs something. The best way to distribute a limited number of goods to a maximum number of people is a free market with a free price system. There will always be the poor who require charity to be taken care of. There will always be the rich who can afford the million-dollar life-saving procedure (but of course in time that procedure will get cheaper).
Every commodity costs something. The best way to distribute a limited number of goods to a maximum number of people is a free market with a free price system. There will always be the poor who require charity to be taken care of. There will always be the rich who can afford the million-dollar life-saving procedure (but of course in time that procedure will get cheaper).
You can move away from flood risk, you cannot move away from an unlucky mutation. So covering the former from public money feels less justified than the latter, at least from the veil of ignorance point of view.
I'm okay with this, with the proviso that it may not have been a flood risk when you built there.
I mean, there are plenty of houses that have been around 50-70 years, and with water levels rising, are now in flood plains that they weren't.
This of course, could be taken care of by subsidizing it based on when you bought the place vs when it became part of a flood plain (FEMA issues flood maps, so you don't have to deal with local politics at least)
I mean, there are plenty of houses that have been around 50-70 years, and with water levels rising, are now in flood plains that they weren't.
This of course, could be taken care of by subsidizing it based on when you bought the place vs when it became part of a flood plain (FEMA issues flood maps, so you don't have to deal with local politics at least)
This actually makes sense, because the "free market" doesn't work properly when it comes to flood plains. In theory, people would never put their homes on a flood plain if they couldn't get flood insurance. But the market for dwellings is highly irrational.
Dunno about Winnipeg's historical geography, but take a look at old New Orleans maps: people didn't build in the floodplain, for obvious reasons. Once government stepped in with grand assurances of levees ("we'll stop the flooding") and welfare ("if that doesn't work, we'll take care of you"), buyers were blinded to the natural realities. For decades, I'd see annual magazine articles opining "ya know, New Orleans is gonna flood again" - then it did.
It's not that "the free market doesn't work properly when it comes to flood plains", it's that government interference with its promise of what amounts to (and the article advocates) "free insurance" doesn't work properly. People build there because they're lied to: "yeah, sure, if something bad happens we'll confiscate the money you need from others and give it to you". We're now in a time where a whole lot of promises by a whole lot of governments - promises of "free insurance" included - are coming to hit the reality that "socialism fails when you run out of other people's money."
People take risks of natural disasters (floods, tornados, ice, whatever) everywhere. Hurricanes in Florida, blizzards in Canada, tsunami in Indonesia, tornados in Kansas, flooding in Winnipeg... It's up to them to decide what risks they'll take, what potential losses they're willing to accept as tradeoff for what probable benefits, and how they're going to prepare for disaster. Free market takes the very real facts of availability & limitation and disperses it in a fair manner; government intervention all too often distorts these facts, overpromises, underdelivers, and on the whole operates by garnering the support of many by promising to take from few by force.
Dunno about Winnipeg's historical geography, but take a look at old New Orleans maps: people didn't build in the floodplain, for obvious reasons. Once government stepped in with grand assurances of levees ("we'll stop the flooding") and welfare ("if that doesn't work, we'll take care of you"), buyers were blinded to the natural realities. For decades, I'd see annual magazine articles opining "ya know, New Orleans is gonna flood again" - then it did.
It's not that "the free market doesn't work properly when it comes to flood plains", it's that government interference with its promise of what amounts to (and the article advocates) "free insurance" doesn't work properly. People build there because they're lied to: "yeah, sure, if something bad happens we'll confiscate the money you need from others and give it to you". We're now in a time where a whole lot of promises by a whole lot of governments - promises of "free insurance" included - are coming to hit the reality that "socialism fails when you run out of other people's money."
People take risks of natural disasters (floods, tornados, ice, whatever) everywhere. Hurricanes in Florida, blizzards in Canada, tsunami in Indonesia, tornados in Kansas, flooding in Winnipeg... It's up to them to decide what risks they'll take, what potential losses they're willing to accept as tradeoff for what probable benefits, and how they're going to prepare for disaster. Free market takes the very real facts of availability & limitation and disperses it in a fair manner; government intervention all too often distorts these facts, overpromises, underdelivers, and on the whole operates by garnering the support of many by promising to take from few by force.
The argument appears to be that we should compensate people for bad luck, whether that's living on a flood plain, or suffering from poor health. But why stop there? Why not compensate people for their less-than-optimal genes? It's well established that people of below-average heights earn less over a lifetime than tall people, and one can hardly tell them to just knuckle down and grow a bit taller. They're entirely innocent victims of forces beyond their control.
I think it's possible to divide people into three groups: people who accept my above statement and think that we should compensate the unfortunate, people who also accept that above statement and think that we should not, and therefore (perhaps) should not compensate the flooded or the ill, and people who simply don't accept the statement.
Right-wing libertarians are pretty much in category two. Socialists (real, actual socialists) are probably in category one. The group that interests me is category three, which seems to consist of most people, and which doesn't seem to have a coherent view on this. Why should we help flood victims or cancer sufferers and not the vertically-challenged?
For my part, I'm ethically in category one, but I don't really know if it's possible to compensate people for their misfortune without having to make a vast range of impossible judgements about what constitutes 'misfortune'.
I think it's possible to divide people into three groups: people who accept my above statement and think that we should compensate the unfortunate, people who also accept that above statement and think that we should not, and therefore (perhaps) should not compensate the flooded or the ill, and people who simply don't accept the statement.
Right-wing libertarians are pretty much in category two. Socialists (real, actual socialists) are probably in category one. The group that interests me is category three, which seems to consist of most people, and which doesn't seem to have a coherent view on this. Why should we help flood victims or cancer sufferers and not the vertically-challenged?
For my part, I'm ethically in category one, but I don't really know if it's possible to compensate people for their misfortune without having to make a vast range of impossible judgements about what constitutes 'misfortune'.
Wrong analogy - Not a valid argument for government health insurance. There may be other justifications but this is not one. If this were really true we would already have government provided health insurance everywhere because private insurers would have gone bankrupt long ago.
Flood insurance is fundamentally different from health insurance because floods cause large losses for large numbers of people at the same time (i.e. highly correlated incidence of losses). This means the insurer or insurers would have to make a huge payout in the event of a flood. If this payout is greater than all their resources, then everyone can't fully rebuild their home.
Most people can't afford to rebuild their home if it is destroyed because they do not have the resources. Similarly private insurers simply can't afford to rebuild everyone's home at the same time. And while some insurers might be willing to take the risk any responsible regulator should stop them.
Governments are often the only entities with the enormous resources to make these huge payouts. Therefore we have an vaild argument for the government providing flood or earthquake insurance.
Health issuance is entirely different because large health expenses do not occur to large numbers of people at the same time. Health insures are not going bankrupt because of flu epidemics. Instead they set their rates to cover these predictable payouts as well as generate a profit.
Unlike rebuilding an entire home most health expenses are affordable by most patients. It is only occasionally that the required treatment is so expensive that we need a third party to pay for it. In some countries this is done by private insurers and providers and in some it is done by governments.
While this is not a good argument for government health insurance there are many. Unfortunately this is a very complex area requiring expertise in many areas: insurance, economics, regulation, politics... and perhaps even software development.
Flood insurance is fundamentally different from health insurance because floods cause large losses for large numbers of people at the same time (i.e. highly correlated incidence of losses). This means the insurer or insurers would have to make a huge payout in the event of a flood. If this payout is greater than all their resources, then everyone can't fully rebuild their home.
Most people can't afford to rebuild their home if it is destroyed because they do not have the resources. Similarly private insurers simply can't afford to rebuild everyone's home at the same time. And while some insurers might be willing to take the risk any responsible regulator should stop them.
Governments are often the only entities with the enormous resources to make these huge payouts. Therefore we have an vaild argument for the government providing flood or earthquake insurance.
Health issuance is entirely different because large health expenses do not occur to large numbers of people at the same time. Health insures are not going bankrupt because of flu epidemics. Instead they set their rates to cover these predictable payouts as well as generate a profit.
Unlike rebuilding an entire home most health expenses are affordable by most patients. It is only occasionally that the required treatment is so expensive that we need a third party to pay for it. In some countries this is done by private insurers and providers and in some it is done by governments.
While this is not a good argument for government health insurance there are many. Unfortunately this is a very complex area requiring expertise in many areas: insurance, economics, regulation, politics... and perhaps even software development.
Private health insurance works fine for a large percentage of the U.S. population. It's worked well for 3 generations of my family, for example, and there is plenty of data that shows similar successes for many millions of other people.
There are situations where it does not work well, and it is appropriate that the government steps into those situations. The U.S. government already does this, with Medicare, Medicaid, and Social Security. Just like they provide flood insurance to the few people who need it.
But neither the U.S., nor Canada, have stepped in to take over the entire homeowner insurance market. Why not? Because it works well enough the way it is. There's no need.
Likewise, replacing the entire private U.S. health insurance industry with government-run single payer is not needed. It would be hugely risky, but with little marginal benefit for those who would be most affected.
There are situations where it does not work well, and it is appropriate that the government steps into those situations. The U.S. government already does this, with Medicare, Medicaid, and Social Security. Just like they provide flood insurance to the few people who need it.
But neither the U.S., nor Canada, have stepped in to take over the entire homeowner insurance market. Why not? Because it works well enough the way it is. There's no need.
Likewise, replacing the entire private U.S. health insurance industry with government-run single payer is not needed. It would be hugely risky, but with little marginal benefit for those who would be most affected.
Unfortunately, health costs have far outpaced inflation and earnings. Just(?) 20 years ago I worked as an IT consultant for a large health insurer and the comfy corporate group PPO "family coverage" option (2 adults and an unlimited number of children) cost $300/mo total, not just the employee's portion. Today's total rate on a similar plan is about $1500/mo. That's almost 10x the net increase in the CPI over the same period.
Put it another way: in 1993 there were plenty of IT pros (not company owners) making $100K+. Are there just as many percentage-wise making $500K+ now?
Put it another way: in 1993 there were plenty of IT pros (not company owners) making $100K+. Are there just as many percentage-wise making $500K+ now?
This is a common misunderstanding; health care costs have gone up faster than inflation, not just private health insurance costs. Costs have gone up for government-paid programs as well, which is why there is such focus on entitlement spending in the political discourse recently.
It is a real problem, but not one that rests solely on the shoulders of private insurance companies.
It is a real problem, but not one that rests solely on the shoulders of private insurance companies.
Yup, I totally agree. To make matters worse, the off-contract rates on the invoices are often astronomical compared to what they actually get from your insurance - like 10x or more.
Normally you're good if you stay in-network, but an ER visit to an in-network hospital can result in a separate bill for say $600 directly from a doctor who might've seen you for five minutes but doesn't work as an employee of the hospital. Unless you just can't pay or want to white knuckle it and play poker negotiating you can't get a lower rate because that doctor's "not on your insurance." I've seen this virtually every time someone's gone to the ER.
Normally you're good if you stay in-network, but an ER visit to an in-network hospital can result in a separate bill for say $600 directly from a doctor who might've seen you for five minutes but doesn't work as an employee of the hospital. Unless you just can't pay or want to white knuckle it and play poker negotiating you can't get a lower rate because that doctor's "not on your insurance." I've seen this virtually every time someone's gone to the ER.
I don't think you can claim that it's not needed just because a 'large percentage' of the population is well-served. The United States' population is over 313 million people according to the last census. Would you be okay with 3 million people dying or living in perpetual poverty because they don't have access to preventative/emergency care? Politicians in the US regularly make a fuss about things that affect less than 3 million people.
Now, you can argue that any government-run single payer system would have 'marginal benefit', but you'd have to work pretty hard to do worse than what we have now for those people.
Now, you can argue that any government-run single payer system would have 'marginal benefit', but you'd have to work pretty hard to do worse than what we have now for those people.
> Would you be okay with 3 million people dying or living in perpetual poverty because they don't have access to preventative/emergency care?
Obviously not, which is why I said that it is right that the government should step into those kinds of situations.
But now let's picture 3 million people for which private insurance works fine. Why should the government take over their insurance?
Obviously not, which is why I said that it is right that the government should step into those kinds of situations.
But now let's picture 3 million people for which private insurance works fine. Why should the government take over their insurance?
Medicare doesn't pay if the patient doesn't show improvement. If the person is dying, medicare will not pay for their care, leaving dying people and their families to choose between pain and debt.
We will all die. Why, in this world of medical advancements, can't we all help each other die as painlessly as possible?
We will all die. Why, in this world of medical advancements, can't we all help each other die as painlessly as possible?
This is a great question, and I agree with you about the value of palliative care. But it is a question of Medicare policy, not government vs. private insurance.
Extending Medicare to cover everyone (one model for how the U.S. could move to single-payer), would not solve this problem.
Extending Medicare to cover everyone (one model for how the U.S. could move to single-payer), would not solve this problem.
Whenever I read about natural disasters affecting some large urban dwelling, e.g. Winnipeg, New Orleans, I always wonder why we still have that problem. Not that people are building on that land, but that we haven't yet figured out how to live safely and conveniently on flood plains, etc.
The health care analogy is rather than spending public money on fixing broken people, spend money on making fewer people broken in the first place. Better preventative measures, better safety rules, healthy eating campaigns, more anti-ageing research, etc.
Surely when looking for 'stimulus' plans, this kind of thing that will work out net-positive financially for the government and result in a better quality of life for people in the affected area should be amongst the first thing getting funded?
In short: why on Earth are we still subject to the whims of God?
The health care analogy is rather than spending public money on fixing broken people, spend money on making fewer people broken in the first place. Better preventative measures, better safety rules, healthy eating campaigns, more anti-ageing research, etc.
Surely when looking for 'stimulus' plans, this kind of thing that will work out net-positive financially for the government and result in a better quality of life for people in the affected area should be amongst the first thing getting funded?
In short: why on Earth are we still subject to the whims of God?
I think you are right as there are ways to mitigate natural disasters. The question is whether or not there is political will to pay for the mitigation measures until the disaster happens. Winnipeg had been flooded severely several times in the last hundred years until the 1970s when a giant floodway was created which could divert a river's worth of water around the city. Since then the floodway has saved the city from numerous large floods and has just recently been expanded to provide protection for a 1 in 700 year flood.
It seems unfortunate the city was catastrophically flooded several times before that monetary expenditure was politically acceptable.
It seems unfortunate the city was catastrophically flooded several times before that monetary expenditure was politically acceptable.
Except of course that if person A chooses to be very health-conscious, exercises, eats healthy, and doesn't abuse coffee, sugar, salt, tobacco, and alcohol, and pays more for better food and gym membership that person B who eats fast food, drinks, smokes, and eats kit-kats all day long, then person A gets taxed to pay for person B's surgeries and other treatments. This doesn't seem fair at all. It makes it look like all the people living in the hillside because they didn't want to move to the floodplain have to pay for the guy's house in the flood plain even though they warned him not to build there.
Seems to me that everyone would then say: "well, let's not be healthy, let's not eat well, since the government will pay for all our surgeries and medicine..."
What happened to personal responsibility?
Seems to me that everyone would then say: "well, let's not be healthy, let's not eat well, since the government will pay for all our surgeries and medicine..."
What happened to personal responsibility?
> Seems to me that everyone would then say: "well, let's not be healthy, let's not eat well, since the government will pay for all our surgeries and medicine..."
The government might pay for your health care, but they can't reincarnate you if you die. So there's still a reasonable incentive to stay fit.
There's some UK TV show where the government (I think) is paying for fat people to get stomach staples. Preventative medicine can save money in the long run, and public health systems are often more willing to do it (since the guys in charge care about the next election, and not just the next quarter).
The government might pay for your health care, but they can't reincarnate you if you die. So there's still a reasonable incentive to stay fit.
There's some UK TV show where the government (I think) is paying for fat people to get stomach staples. Preventative medicine can save money in the long run, and public health systems are often more willing to do it (since the guys in charge care about the next election, and not just the next quarter).
And what about the (very common) scenario where person A actually contracts an expensive disease based on environmental factors that are largely out of their control and person B lucks out with great genes and has no significant health issues.
I don't think most people have a problem with personal responsibility in this context (theoretically). But the healthcare debate is SO much more complicated than that.
I don't think most people have a problem with personal responsibility in this context (theoretically). But the healthcare debate is SO much more complicated than that.
Yeah, 'cause gastric bypass and daily insulin injections are gobs of fun.
Humans are really bad at long term risk assessment. No one says "I'm going to eat 2000 extra calories every day because the government will pay for my daily insulin injections when I get diabetes". They say "bah, it won't happen to me".
Humans are really bad at long term risk assessment. No one says "I'm going to eat 2000 extra calories every day because the government will pay for my daily insulin injections when I get diabetes". They say "bah, it won't happen to me".
And obviously we should include risky sexual behavior and unplanned pregnancies on the list of things people should be personally responsible for as well.
And all sorts of sports and outdoors activities that raise risk.
It's only fair.
And all sorts of sports and outdoors activities that raise risk.
It's only fair.
I don't buy it. I get health insurance between jobs because I know American health care is very expensive. I know if I tear a knee ligament playing ultimate frisbee it could force me into bankruptcy. So I pay someone slightly more than the expected cost of sports injuries in a man my age to insure against that risk. The regulators force me to insure against a bunch of other risks too that I don't need. But other than that meddling, it's a pretty classical insurance market.
The real problem with American health care is just that it is very expensive compared to the rest of the world. We get better health outcomes on the high-end stuff in exchange (our cancer survival is tops), but overall health outcomes aren't great.
The real problem with American health care is just that it is very expensive compared to the rest of the world. We get better health outcomes on the high-end stuff in exchange (our cancer survival is tops), but overall health outcomes aren't great.
There's a lot more wrong with American health care than prices. I know a lot of people who simply can't get insurance in the US at any price because of how the market works - and some of them are in great health and have been forever. It's actually quite close to raganwald's 'flood plain' example, where the insurers will outright refuse or quote impossible rates.
And, as it happens, I can't buy insurance on the free market anymore either. I've never been hospitalized or needed surgery or been injured, so I used to get pretty affordable insurance and have no problem paying out of pocket. Then I saw a therapist and that was enough for every insurer I've contacted since to blanket refuse to insure me at any rate. According to the state agencies that regulate this stuff, that's how the system is supposed to work.
Now, you could say that this is how an insurance market should work - maybe the reason people like me can't buy insurance at any price on the free market is because it's not possible to turn a profit by insuring us, statistically, even if individually we are incredibly healthy and pay a ton. I can buy that explanation. But do you think it's morally right for people to be unable to access basic preventative care at reasonable cost, and be unable to afford emergency care, just because statistically 5-10% of the people in their group are expensive?
I think it's also worth considering the counter-example: group health in the US is comparatively quite sane. If your employer has a reasonable group health plan, you can count on having basic coverage, even if a pre-existing condition gets excluded for a bit when you first enter the plan. The employer's overall cost for the group might go up, but that's about it. A friend of mine found out that his company's rate for group health was nearly $2000/mo - apparently they had lots of high risk employees - but my past employer's group health rate, in comparison, was around $400/mo for good coverage.
And, as it happens, I can't buy insurance on the free market anymore either. I've never been hospitalized or needed surgery or been injured, so I used to get pretty affordable insurance and have no problem paying out of pocket. Then I saw a therapist and that was enough for every insurer I've contacted since to blanket refuse to insure me at any rate. According to the state agencies that regulate this stuff, that's how the system is supposed to work.
Now, you could say that this is how an insurance market should work - maybe the reason people like me can't buy insurance at any price on the free market is because it's not possible to turn a profit by insuring us, statistically, even if individually we are incredibly healthy and pay a ton. I can buy that explanation. But do you think it's morally right for people to be unable to access basic preventative care at reasonable cost, and be unable to afford emergency care, just because statistically 5-10% of the people in their group are expensive?
I think it's also worth considering the counter-example: group health in the US is comparatively quite sane. If your employer has a reasonable group health plan, you can count on having basic coverage, even if a pre-existing condition gets excluded for a bit when you first enter the plan. The employer's overall cost for the group might go up, but that's about it. A friend of mine found out that his company's rate for group health was nearly $2000/mo - apparently they had lots of high risk employees - but my past employer's group health rate, in comparison, was around $400/mo for good coverage.
When I see a market behaving insane, I want to know what market incentives and government regulations are distorting it. In your case, the knowledge that you saw a specialist would make a logical underwriter raise the price, but you should be able to get insurance at some price.
The big regulation that I know of is the tax treatment that makes it much cheaper for insurance to be purchased through employers. This has prevented a robust individual insurance market from developing - it would be very costly for the insurance companies to build out this service for a small percent of the market.
The other major regulations that increase cost and reduce choice are required coverage regulations. There is always some heartstring pulling to get treatment X included in the required bundle.
The big regulation that I know of is the tax treatment that makes it much cheaper for insurance to be purchased through employers. This has prevented a robust individual insurance market from developing - it would be very costly for the insurance companies to build out this service for a small percent of the market.
The other major regulations that increase cost and reduce choice are required coverage regulations. There is always some heartstring pulling to get treatment X included in the required bundle.
Insurance doesn't work, period...for anything. It's gambling in reverse, and the house always wins, especially in the last few decades when they can crunch so much data and know the price points with great precision. What's worse is that insurance companies are becoming even more monolithically inefficient than government agencies while still racking in obscene amounts of cash, without having to do anything more than bombard you with horrible advertisements featuring talking geckos.
The fact that some insurances are required by law (in the US at least) disturbs me deeply.
The fact that some insurances are required by law (in the US at least) disturbs me deeply.
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What worthwhile benefit does society receive for underwriting the cost of rebuilding property in flood plains?
I mean, if you build a house where it's likely to be destroyed, it obviously benefits you to make your inland neighbors pay for your house, should it be destroyed. But how does it benefit your inland neighbors? What do they get that is worth the cost of underwriting your risky behavior?
I mean, if you build a house where it's likely to be destroyed, it obviously benefits you to make your inland neighbors pay for your house, should it be destroyed. But how does it benefit your inland neighbors? What do they get that is worth the cost of underwriting your risky behavior?
As I noted above, after the 1957 Hurricane in Toronto, the city appropriated the floodplains. There was no benefit to rebuilding when people could easily be relocated.
The trouble with Winnipeg is that it's an entire city. It's an economic engine that was built on a river at the time when river commerce was vital. Moving the entire city is infeasible at this point in time, so the givernment assumes some of the flood risk and mitigates some of it with civic projects.
The trouble with Winnipeg is that it's an entire city. It's an economic engine that was built on a river at the time when river commerce was vital. Moving the entire city is infeasible at this point in time, so the givernment assumes some of the flood risk and mitigates some of it with civic projects.
I wonder if the insurance payments (~$65 per month) is enough to cover the ongoing healthcare costs even when everybody has to pay up.
I mean, if it was as simple as charging everybody 65 bucks, you'd think the US wouldn't have the problem where many people can't afford to pay for medical care.
I mean, if it was as simple as charging everybody 65 bucks, you'd think the US wouldn't have the problem where many people can't afford to pay for medical care.
I am missing the part where I am morally impelled to subsidize poor decision making. This applies specifically to the flood plain example - though there are some corollaries to health care; eg. people eat bad food and smoke etc... which leads to increased costs.
The post states that flood plain knowledge is high - and the data is easily available. So why should I help someone if they are knowingly taking a risk? The point of taking a risk after a risk-benefit assessment is that there is a payoff that would be greater with the risk than without it. If you shift the cost of the risk away from the principal agent, then there is no impetus to optimize your decision.
So again, why should I absorb your risk if significant and verifiable information is available?
The post states that flood plain knowledge is high - and the data is easily available. So why should I help someone if they are knowingly taking a risk? The point of taking a risk after a risk-benefit assessment is that there is a payoff that would be greater with the risk than without it. If you shift the cost of the risk away from the principal agent, then there is no impetus to optimize your decision.
So again, why should I absorb your risk if significant and verifiable information is available?
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There's not a lot of meat here. If you really want to dive into the details of the regulations, costs, and incentives of the US health market you can do so elsewhere. But this is just an eloquent expansion upon a particular political talking point. You won't learn much besides raganwald's political leanings.
I buy arguments that health insurance breaks down for the very old and the very sick. But otherwise there is no theoretical reason for believing you can't insure health risk. However, there are seven decades of bad regulation which complicates the matter in the US.
I buy arguments that health insurance breaks down for the very old and the very sick. But otherwise there is no theoretical reason for believing you can't insure health risk. However, there are seven decades of bad regulation which complicates the matter in the US.
Did you get the joke from the West Wing, or from the place the West Wing got it from, which I don't know?
I strongly suspect that this joke predates not only the TV show, but also the construction of the West Wing.
Really nice piece. Thank you.
Miles rasped, "Try taking the instrument out of your mouth."