[scottmp10]

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.

[philwelch]

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.

[NateDad]

#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.

[scottmp10]

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.

[philwelch]

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.