Suppose there are two people in your community who are not covered by health insurance. They are the two poorest households in your community and they are living under identical conditions—same age, same income, same consumption bundles. As a benevolent community leader you decide that they lack the financial means to purchase health insurance. So, you go to the community coffers and write each of them a check for $10,000.
The first individual immediately uses the $10,000 to purchase a standard health insurance package. The second individual chooses to remain uninsured and instead spends the money on XYZ.
Have you solved the identified health insurance problem in the community?
Was the second $10,000 a poor use of public resources?
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My university contemplated requiring all students to have health insurance. One of their reasons was that an uninsured student poses a heath threat to the rest of the student population. The uninsured student won't get his communicable disease taken care of and will infect everyone else on campus.
Are there specific and measurable positive externalities from having all people in a community on health care? I would say yes, but requiring/subsidizing the health care is not the most efficient way to obtain those externalities. If the entire population were uninsured and sick, I would not want to be a part of that community. However, my loss in that situation would be less than the loss suffered by the individual who is sick.
The 10k checks to the poor families were equally unwise expenditures. the family who purchased the health insurance will not improve the community by 10k from the benefits derived from the health insurance. The other family probably has a better chance of contributing 10k back to the community. Possibly they use it to start a business. Maybe they buy crack with it, I don't know.
Either way, both families spent the money on what they wanted most.
Economics assumes that people assess risks when making purchasing decisions -- i.e. based on my valuation of my risk of getting sick, how much am I willing to pay for health insurance. Do you think that people are very aware of their risk of developing cancer (or X condition) and how much it would cost them if they did? I wonder if more information might get more people to pay for health insurance.
Anon- So it may be a problem of inperfect information, not irrational behavior. Let me extend the question:
(1) If we have close to perfect information and the one of the individuals still doesn't purchase insurance, are you comfortable with less than universal coverage?
(2) If no, are you saying that, controlling for income, imperfect information explains all decisions to go uninsured? That, in other words, everyone would choose to purchase health insurance if they knew what was good for them. Can you characterize 50 million uninsured Americans with this level of incompetency?
No. Even with perfect information, I do not expect every single person to choose to buy health insurance. People would likely have different reasons, and different preferences.
Some people really do have a low risk of getting an expensive illness (though regardless of your genetic makeup there's still the risk of things like car accidents that might land you in the hospital). Some people like taking risks. Some people think they are invincible and believe they aren't taking a risk at all (maybe this falls under irrational behavior but I think it's prevalent, especially among younger males...who are, at the same time, generally at lower risk of health expenses, and are more than a blip in accounting for the uninsured). Some people are probably wealthy enough that they don't have to worry about coughing up a lot of money in the event of needing costly health services.
So yes, I am comfortable with less than universal insurance coverage. My hope is that everyone has a realistic opportunity to buy decent health insurance, and is informed about the considerations they might make in choosing to buy it (or not to buy it).
- not so anonymous
Anon- Based on your last paragraph, we are totally in agreement. (1)Everyone should be able to *afford* a minimum level of insurance. (2)More education means those who can afford insurance will be more likely to actually purchase it. Note though, there is nothing in these statements that predicts what the actual level of insurance coverage will be. By maximizing individual choice and allowing for the pursuit of individual preferences in the consumption of healthcare, the problem of insurance coverage is best addressed as a problem of poverty.
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