[powera]

That is the whole point of socialized medicine. The point of insurance is that you pay slightly more than the expected value of your claims. So if you know you need $5000 worth of medical treatment for asthma, your insurance premium should be definitely more than $5000.

This bizarre obsession with using the phrase "insurance" and insisting on a product that is not at all insurance is probably why the US health-care system is so fucked.

[ModernMech]

> That is the whole point of socialized medicine. The point of insurance is that you pay slightly more than the expected value of your claims. So if you know you need $5000 worth of medical treatment for asthma, your insurance premium should be definitely more than $5000.

How does that make sense? If I knew I needed $5000 worth of medical treatment for asthma, and I pay an appropriate premium based on that, but then I get cancer..... well then someone else is going to have to pay for that, because my premiums certainly won't cover the cost of cancer treatment.

[twoodfin]

You’d pay the 99% chance of asthma * $5,000 + 1% chance of cancer * $50,000 (or whatever the probability you get cancer * the estimate of cancer treatment costs).

If you do get cancer, the other 99% of folks who didn’t get it are covering your costs.

[ModernMech]

> If you do get cancer, the other 99% of folks who didn’t get it are covering your costs.

This is exactly my point, but it's this mechanism Paul Ryan said wasn't working. @powera claimed this is not the point of insurance. These things seem like exactly the same thing to me, so help me understand the nuance.

[twoodfin]

It’s the asthma for which you are near-guaranteed to need $5,000 worth of treatment for that’s the issue, not the small chance you get cancer.

You’re not looking to insure against the chance you get asthma: You have asthma, and you’re looking for someone healthy to help pay for it. If too few healthy people sign up for Obamacare relative to the sick (and remember, all else equal, they have to be charged the same regardless of their health) those healthy folks will get an increasingly bad deal as their premiums are covering the costs of more and more sick enrollees and more and more healthy folk drop out of the exchanges. That’s the “death spiral”.

[pjdemers]

The probability of getting cancer over a lifetime is more like 40%. https://www.cancer.gov/about-cancer/understanding/statistics Some people with cancer die quickly, but most live with it for years of expensive treatments.

[maxerickson]

The known cost isn't really insurable. A premium based on expected costs would include the full amount of the known future costs and also some amount for less predictable costs.

[ModernMech]

Okay, now we're getting somewhere. Let's stay with the example of asthma. I pay a premium based on that condition, and the expectation that maybe one day I'll get cancer. Sure, I can understand that.

So then I get cancer, and the bill is more than I can afford. Where does the money come from? Not my premiums, because I've only been a subscriber for 3 months, and my premiums won't even cover the cost of treatment for a week of cancer treatment. If someone else isn't paying for me, and I'm not paying for me, who is paying for my treatment?

[maxerickson]

Other people do pay for the cancer treatment. Make up a pool of, say, 1000 people. Make up a cancer rate of say, 5/1000. Make up an asthma rate of say, 50/1000.

The people that are going to get cancer are unknown, but the whole group is willing to pay 0.5% of the cost of cancer treatment for a contract that covers 100% of the cost.

The 950 people that know they don't need expensive asthma treatment don't really want to pay for contracts that will cover expensive asthma treatment, so (in a pure insurance market) either the cost has to be included in the contracts for the 50 that do have it or the treatment can be excluded from the contracts.

[maxxxxx]

" The point of insurance is that you pay slightly more than the expected value of your claims. "

Not true. Car liability insurance is very similar to health insurance. A lot of people never get anything out of it.

[owyn]

You don't have to own a car. Everyone gets sick at some point, and everybody dies of something. Whether that's cripplingly bankruptingly expensive or not is partly the point.

Although I suppose if the singularity happens, that will also solve the health care crisis in this country. (sarcasm)

[wyager]

Your EV from holding a car insurance plan is slightly lower than if you’d put that money in bonds. The benefit is that you can spread your risk across multiple parties. It’s entirely different from medical insurance, where your EV depends strongly on individual circumstances (and can be very negative). Medical insurance providers aren’t allowed to give accurate pricing, so you basically end up with a really complicated subsidy program.

[maxxxxx]

" Medical insurance providers aren’t allowed to give accurate pricing, "

Why are they not allowed to do so? I think it's more likely that they don't want to so they can make up prices as they wish.

"Your EV from holding a car insurance plan is slightly lower than if you’d put that money in bonds. The benefit is that you can spread your risk across multiple parties. It’s entirely different from medical insurance, where your EV depends strongly on individual circumstances (and can be very negative)."

This is exactly the same as health insurance. Spread risk over many people. EV depends on individual circumstances (driving skills or health). If health insurance is healthy people subsidizing sick people, then car insurance is good drivers subsidizing bad drivers. I don't see the difference.

[Fins]

But with auto insurance, if you're a bad driver, or even a driver with perceived higher risk (teen, unmarried, driving a little red sports car) your rates will be quite a bit higher. If you're a low risk driver, your rates are low. With ACA, if you are low risk (young and healthy) you are paying more than you would have otherwise.

[maxerickson]

They are using expected value in a technical sense.

In a pure contract between equally informed parties, it's exactly how insurance would be priced.