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Ronfar's avatar

You don't need the government. Insurance, properly priced, is redistribution from the lucky (who suffer fewer insured losses than expected) to the unlucky (who suffer more insured losses than expected).

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Alexander Turok's avatar

In your standard insurance setup, the expected value of the policy is around zero for all who sign up for the policy, everyone who signs up gets a large chance of a small loss plus a small chance of a large payout. The industry has an incentive to balance the equation around zero for every customer, people who have higher chances of payouts will be charged more for the insurance itself.

The redistribution part comes in when the government forbids the balancing of the equation so that it becomes a good deal for people in the redistributed-to category(in the case of health insurance this is often women, children, the old, and the dick) and a bad deal for the redistributed from category.(the young and health) Thus the need to force providers to provide for the former and force the latter to buy policies.

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