Well, Someone Doesn’t Understand Insurance Anyway

People have made the point before that, for a couple of reasons, there really aren’t any healthcare experts on the right. Between a combination of conservatives generally believing there aren’t significant problems with America’s healthcare system and people who spend some time investigating and researching it concluding otherwise, pretty much everyone who becomes an expert or something close on healthcare issues winds up developing opinions that fall in line somewhere in the broader left. What I think goes less remarked on is the degree to which a substantial number of people on the right just don’t understand how health insurance works. Timothy Noah hit on this a little bit recently, but consider this declaration from CATO’s Michael Cannon, ironicallycontained in a post asserting that Paul Krugman doesn’t understand how insurance works:

  • Healthy people dropping coverage would not lead to across-the-board premium increases in California, because California allows markets to set premiums.  Only when the government imposes the kind of price controls that Krugman wants does an “adverse selection death spiral” follow.
  • To be polite about it, this just doesn’t make a whole lot of sense. The adverse selection problem Krugman is discussing is what happens when younger, healthier people opt not to enter into insurance pools, leaving the pool older, unhealthier, and more costly than they would be with them. Because this is how insurance works; risk is pooled together, and costs are distributed amongst the people in the pool. This makes coverage cheaper for people at higher risk, and more expensive for people with lower risk. But of course, everyone gets older, so while this may be a bad deal at one point, at a later point you’ll be on the other end of the spectrum. As Cohn notes, this is why conservatives love of high-risk pools illustrates that they’re simply not serious about doing real healthcare reform. I’m not really sure why Cannon thinks price controls would exacerbate this problem, if anything they ought to make insurance more attractive to younger customers. But then, I don’t really understand how libertarians think anymore than they understand how health insurance works.


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