Acts of God

I'm sooooooooo busted! Off to listen to "Sahara..."

And here I almost missed that, and was about to DV him for an unnecessarily high snark/signal ratio.

Yes, and that's why I added "often" to my last sentence. But while you can certainly avoid some illnesses by making good life choices, it's still out of your control. You can have never touched a cigarette and still get lung cancer.

In fact, that opens up another reason for public healthcare- many illnesses are caused by society as a whole. That second hand smoke from the man sat next to you at the bus stop is an individual thing, but the pollution coming out of the power station on the edge of town is a far broader issue.

You could say "fine the power company!", but that's short sighted- everyone benefits from the power they provide. As a society we have decided that x level of pollution is acceptable in order for us to have y level of comfort. The side variable is the number of illnesses caused by that pollution, and I think there's a strong argument that the costs of that should be borne by society.

Yeah, but the problem is similar to the "subverting natural selection" argument against health insurance. You're not just accepting historical accident, you're actively taking away the incentives for acting sanely. I can understand the historical imperative, but that's not all you're doing by switching the costs to the government : you're changing the incentives for individuals. The short-term advantages of locating in a specific location (including short-term savings of not securing against acts of God at all) are allocated to individuals, the costs are carried by the whole.

In this case that means building a lot of houses that will predictably suffer massive damage due to floods and/or other "acts of God" that are actually reasonably predictable (when may be unpredictable, but you the odds are 1000:1 that it will happen at some point in the next, say, 10 years).

In the health care that means having habits that are will predictably lead to health problems (take your pick what you consider worse: expensive health problems or fatal health problems or health problems that are likely to spread). Whether we're talking eating fat, smoking, carelessness around animals, not cleaning living places or promiscuity : all will result in steadily building likelihood of serious health consequences.

The issue is that this leads to an exponentially rising cost (you can prove that given reasonable assumptions the consequences' cost and seriousness will rise along with population size or faster), even in the face of efficiency improvements. This is because exponentially rising costs versus exponentially diminishing efficiency improvements : there is no question which will win, there's only a question of when.

The problem is that in the short term efficiency improvements are likely to win, which is then of course used as an argument to state "see ? We can handle it". The truth is, obviously, that there is no way to handle the exponential rise that doesn't violate the laws of physics.

So the real question is : Why build systems that common sense says : 1) must fail, no matter how many resources are comitted to make them work 2) are very likely to cause enormous damage just before they fail completely

People are naturally risk adverse. Government subsidized flood insurance incentivises people into living in locations they wouldn't otherwise live. The free market is telling people not to live there because it's prohibitively costly. Government puts people's life in danger by manipulating the cost of living in dangerous places. It forces society to fit the bill for the endless cycle of destruction then reconstruction.

Besides the fact government interference in the insurance market does more harm than good to those it intends to protect, the wealthy are the ones that most benefit from government flood insurance. The vast majority of people that live in places where insurance is unavailable or too expensive are those wealthy enough to build a house on a hurricane prone beach. (Think too of the fire/earthquake prone hills of glorious sunny California)

What you're really asking for is those of average means to subsidies second beach houses for the rich. Not only is your argument faulty it's immoral.

We're all better off taking care of ourselves than being taken care of by morons. The government solution to a problem is inevitably worse that the problem itself.

He is saying that people should pay for their actions when they move to a high-risk area. Unfortunately, they cannot properly evaluate the risk because insurance companies cannot create due to competition with the "free" bailouts provided by the government.

Just because one does not agree to financially compensate people for "Acts of God" does not mean they are "perfectly okay with a city of people being left in dire straits".

There is a difference between losing your life and having to empty your savings. Questioning whether or not I am responsible for my fellow man's finances seems fair.

Here's my stance on the whole thing:

Natural disasters which are so far outside the realm of prediction as to become 'black swan' events are, of course, horrible, and everyone benefits from pooling resources to combat these situations (although this is rarely in the form of insurance, and more in savings).

But I view insurance premium pricing (as with all other pricing) as a signal, more than as a result of reckless profiteering. If you're looking to move into a house and the insurance on it is too expensive for you, it means you can't afford that house. Flood/earthquake/volcano risk is equally as important a financial aspect of the property as its purchase price, and just like we saw with the subprime loan crisis, giving credit to those who can't afford it is generally a bad idea. Even if you're prepared to bail out all the institutions which hold that credit, you still get crises.

Now of course, the insurance premium scales with the price of the property, so in an area which often floods, the TCO of houses with a purchase price of X will be inflated to X * (1 + Y) (with the flood risk premium Y calculated by the underwriters based on historical data and predictive models). This means your purchasing power in a flood plain should have a multiple of 1/(1 + Y) compared to outside the flood plain. Basic laws of supply and demand mean that fewer people would be able to, or choose to live in such an area, and therefore the catastrophe of a flood (including the burden on the underwriters) would be lessened accordingly.

There once was a time where people would indeed travel great distances to improve their living situation, and I've done this myself on a few occasions, taking apartments that were much further from the area I wanted to be because the rents on the more central places were too expensive for me. The idea that people have a human right to be able to afford whatever they want, subsidized by everyone else, is a very recent idea indeed, and it's one which I feel isn't standing up to the test of time.

In terms of healthcare, a great analogy to 'flood plains' would be people who continuously put their life and limb at risk by engaging in acts which are well-known to be harmful: smoking, excessive unhealthy eating, and substance abuse. My point is illustrated by the prolonged debate in countries with socialized healthcare on how to treat smokers, the obese, and drug addicts. It's by no means a solved problem, but my point is that you can't refer to the example of publicly-subsidized insurance of individuals who take above-average risks as an example of why we need more of that exact same thing.

It was just an excuse to jump onto one of my favorite soapboxes. But if you can edit the article, by all means do it -- I don't like to see insurance portrayed as mandatory, or the obvious action of a responsible person. That's only true sometimes, and most people can't say when that time is.

A classic scene, when a retailer is offering one of those useless electronic service plans: customer says, "Do I benefit from this offer?". Salesman: "Absolutely!". Customer: "Then why are you offering it to me?"

Additionally, if the incident upon which you need to make a claim happens fairly early in the life of the policy, it's entirely worth it.

> You're right of course, but the reason I don't invest the money myself is mostly because I do not have the skillset to do so as effectively as the insurance company ...

That's what the insurance companies say -- you can't possibly invest the money as well as they can. But you can -- just put the payments into a market index fund, a fund that tracks a market indicator like the DJIA. Such funds have almost no, or no, overhead because no one has to decide anything -- such a fund grows in step with the market indicator that it tracks. And guess what? There are very few mutual funds that do as well as a bonehead market index fund, one in which there's no fund manager to screw things up and charge you for the privilege. Here's why:

http://en.wikipedia.org/wiki/Efficient-market_hypothesis

Second reason -- it's true that insurance companies invest your payments wisely, but it's not true that you benefit from their ability to invest your money. Only their stockholders benefit.

> I pay the insurance company extra to take on that risk of non-appreciating value for me (and maybe to do so more efficiently than I could, so that I actually pay less).

Not if the insurance company makes a profit. And most do, with your money.

>> if an insurer evaluates your true risk and offers a policy, it's not worth it

> This is kind of a silly argument.

No, that is a silly argument, because it doesn't offer an explanation. Consider those electronic service plans that retailers are always trying to get you to buy. They's not worth it. How do I know? Because the retailer wants to sell it to me. Therefore he must come out ahead in the transaction. Therefore it's not in my interest -- I would be better off paying for a repair myself, or replacing the item. How difficult is that?

It's the same with insurance. If you cannot afford to lose the insured item, by all means insure it. For every other case, think a little harder and you may realize there's a reason the insurance company is so eager to sell you a policy.

> Unless "future" happens to be "next tuesday", and "loss" happens to be "catastrophic fire".

That's why people should learn statistics and probability. By buying insurance, you're betting that your house will burn down pretty soon. The insurance company is betting it won't burn down very soon. On average, the insurance company comes out ahead. How do we know? They stay in business, a business paid for with your money.

> It even says so at your link: if you can't afford to replace something, and must have it, then insurance makes sense.

Yes, absolutely, if you cannot afford to lose the insured item, then you really should get insurance. But that leads to the insurance paradox: people who buy insurance tend to be people who cannot afford to lose their possessions because they buy insurance instead of becoming investors.

> Investing in yourself only works on average.

No, not true. On average, you are much better off investing the insurance payments than paying for insurance. If this were not true, insurance companies would be reluctant to offer you a policy. But notice that insurance companies are always willing to write a policy -- which, by its very existence, must benefit them on average.

> Most people don't wish to gamble ...

But buying insurance is as much a gamble as not buying insurance. The difference is the number of players who are gambling with you.

Obviously if you cannot afford to lose the insured item, that's different. My advice is for possessions the loss of which doesn't cripple your life.

> The home owners are willing to pay a slight premium towards the operating expenses of the insurance company.

My point is that the owner would be way ahead by investing the insurance payments rather than handing them over to an insurance company.

> Therefore the correct approach is to only buy insurance for things whose loss would wipe you out financially.

I agree, and I added this clarification to the original post.

You're missing the point that, on average, insurance benefits the insurance company, not the policy holders. How do we know this? Because insurance companies are eager to sell you a policy. If the policy benefited you on average, insurance companies would go out of business on average. But ... they don't.

> The people whose houses don't burn down pay for those whose houses do.

Yes, and I don't smoke in bed. Why should I pay for the risky and unhealthy habits of others? But more importantly, I'm better off investing my money against a future loss than handing it over to an insurance company. This is only true if I can afford to lose the insured item, but many people buy insurance without asking themselves this basic question.

> What if your house burns down the day after you buy it?

This is all about probability, not focusing in on the worst possible case. Insurance companies naturally enough want you to focus in on the worst possible case. But in the long term, and statistically, you're better off self-insuring -- unless a mortgage requires you to carry insurance, or unless you simply cannot afford to lose the insured item.

People shouldn't have to evaluate the risk involved in living anywhere, that is the job of actuators. Their evaluation is presented to consumers through the price system.

If the government didn't bail out homeowners who didn't have insurance, then the risk would be reflected in the price of insurance, and a potential homeowner can then easily compare the utility of living in that location relative to the total cost of owning the home versus any other location. As I said, insurance companies don't even try to offer risky coverage like that because they are competing with bailouts based on compulsory taxation (they are competing with a "free" service). When the government interferes in this case, the consumer is falsely led to believe that the cost of living in that area is lower than it actually is, because they don't have to pay for insurance. Therefore, more people move there than can afford it, and more people need to be bailed out by the government when disaster strikes. It's a vicious cycle.

I can't tell if you are being sarcastic or not, but I'm just going to respond as if you are.

Could it be impossible to provide cost effective insurance against "Acts of God" aka "Nature" to a nation of people without staggering efficiencies? I think it's a very real possibility that this could be a pipe dream right now for a country the size of the United States. Why is it so hard to believe that we may not ever be able to mitigate Nature?

If you would like to draw comparisons between the US and Canada, the U.S. has 315 million people with a 34% obesity rate. Canada has 33 million people with a 24% obesity rate. That's a difference of ~99,231,174 obese people. If you notice, that difference is actually three times larger than Canada's entire population.

I highly doubt we can apply very much of the implementation from Canada to the United States. The wheel very well may need to be re-thought. This is the equivalent of scaling any startup. Anyone can write a twitter clone in a couple hours, it's really not that hard. However, it takes some serious thinking, engineering, thought and complexity to scale that simple CRUD app to millions of users. Your comment seems rather like the owner of a small business complaining that the CEO of a Fortune 500 company can't control his employees as well as he can.

I'm really not meaning to bring up "emotional responses", I'm merely trying to give some people with different opinions a voice.

Also, you seem to think I'm advocating we do not perform life-threatening procedures, which I'm not. I'm questioning who pays for them. Does the public, including those who find abortion morally reprehensible, pay for those abortions? Does the public pay for a liposuction that could have been avoided with diet and exercise?

People seem to forget that this isn't a question of doing procedures or not, this is about who foots the bill for that procedure.

That's the correct conclusion.

Now one has to ask why someone who didn't make the mistake of living in a flood plain has to pay for those who choose to continue to take that risk.

This attitude is all about destroying the notion of personal responsibility. Let everyone else bail me out.

No, the problem is that the insurance company can't average out this risk. Going without insurance is an all-or-nothing proposition - either you lose your house, or you lose nothing. By contrast, insurance companies average this out - they lose X% of houses each year, and charge enough to make a profit.

But insurance in a flood plain is different. The insurance company can't average out the risk - either they lose all of the houses they're insuring, or none of them. Thus, they can't provide any averaging benefit to the consumer - they have to charge an exorbitant amount to ensure they don't go bankrupt if the flood happens the year they open their doors.

The government _can_ handle this, because they are, in a sense, diversified across industries.

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.

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.

Insurance is a really terrible way to pay for any commodity. If I paid a fixed price to go to the grocery store every month and get everything I needed off the shelves, the grocery store would go bankrupt. Obviously, insurance works for event that are unlikely, as a way to mitigate risk. But everyone dies eventually. Everyone will need healthcare.

Because of the nature of insurance, it drives up prices, it misaligns incentives, and our particular mode of insurance--subsidized employer-provided insurance--has the added injury of forcing people to stay in their jobs for the sake of their health and limiting mobility.

Yet, not only do we accept insurance as the best way to pay for healthcare today, we just doubled down on it with Obamacare, requiring people who previously weren't in the insurance market to participate.

My solution is to let healthcare be another commodity, like food, where there is widespread competition and choice, and thus lower prices and more transparency.

With your example, it's not like someone makes a choice in emergency care right now either. But at least you could establish a relationship with a hospital ahead of time. How about an app that lets you join a hospital network for emergencies? What about an annuity plan that lets you save up for a lung transplant ahead of time if/when you need it? I don't know what health entrepreneurs would come up with. But there are solutions out there that will never be tried as long as insurance companies have a stranglehold on the health industry.

You seem to know a lot about the US health insurance market. What percentage of US health spending is driven by this sort of emergency care?

Or is this all theoretical hot wind?

Calling the "free market" inefficient is the most absurd thing I've heard in at least a week.

"Free Markets" clearly aren't the answer for everything, but they are when efficiency is the primary goal. Laws and regulations aren't there to promote efficiency. They are there, ideally, to promote safety. In my experience, the overlap of safety and efficiency is vanishingly small. Would that it were not.

In every situation, we need some balance of efficiency and safety.

Yes, it's true, when you are having a heart attack, you probably don't want to spend time shopping around. That is exactly what "insurance" is for.

When you have a cold and you go to the doctor, that is a waste of a limited resource (the doctor's time specifically). If you as a consumer had to bear the full brunt of the cost of seeing a doctor for non-catastrophic issues, you'd think twice about going over a cold.

That doctor would then be able to take on more patients because their time wouldn't be wasted on trivial things. This is more efficient.

The flip side, is that the expense of the doctor's office dealing with insurance companies would absolutely be reduced. That's an immediate cost reduction. The demand for arbitrary doctor services would be reduced (by virtue of everyone with a sniffle not immediately heading to the doctor).

Simultaneously, doctor's would be able to reach more patients at a lower cost.

Prices for everyday type treatment would go down.

When you disconnect the scarcity of a resource from its price, you wreak havoc on the system. The way we (in the US) use health insurance, it's more like "prepaid medical services" than what insurance was meant for. The problem is that you have disconnected the scarcity of the doctor's time and service with the price of that service. It artificially inflates demand on that doctor's time, because hell, you've already paid the premium this month, if you don't go see the doctor for a cold, you are wasting money.

And that's true. You have wasted money, but going to the doctor for that cold just wastes their time, so now you've doubled down on waste and inefficiency.

I think you're missing the point. The reason why it would cost you $100k is twofold: right now out of pocket expenses are deliberately much, much higher to compensate doctors and medical professionals for nonpayments, and medical professionals have no problem gouging their prices for the insurance companies, or using more-expensive-than necessary procedures for the benefit of patients (because after all, we have a massive principal agent problem). Not to mention that insurance encourages wasteful consumption, decimates competition, and misaligns incentives. And the fact that most people get insurance through their place of work such that they are less mobile and less able to negotiate higher pay just makes the situation more bitter.

My solution is to let the price of medicine float with demand and supply, like any other commodity, where it would lower in price with competition and neuter the influence of health insurance lobbyists.

Also, health is always going to be the sort of profession where the best treatment is too expensive for more people to afford. That's just a natural result of innovation. Every new technology--even those we take for granted today--were too expensive for most people to afford when they were introduced. The way that prices come down for these things is through demand and competition, not through government mandates, which provide no incentive to lower prices (another principal agent problem).

Just like the price of cars and computers and telephones never went down?

Everyone thinks that the market value of something will be more than they can afford. So they implement policies that are guaranteed to make the price higher.

Every commodity costs something. The best way to distribute a limited number of goods to a maximum number of people is a free market with a free price system. There will always be the poor who require charity to be taken care of. There will always be the rich who can afford the million-dollar life-saving procedure (but of course in time that procedure will get cheaper).

> Would you be okay with 3 million people dying or living in perpetual poverty because they don't have access to preventative/emergency care?

Obviously not, which is why I said that it is right that the government should step into those kinds of situations.

But now let's picture 3 million people for which private insurance works fine. Why should the government take over their insurance?

This is a great question, and I agree with you about the value of palliative care. But it is a question of Medicare policy, not government vs. private insurance.

Extending Medicare to cover everyone (one model for how the U.S. could move to single-payer), would not solve this problem.

This is a common misunderstanding; health care costs have gone up faster than inflation, not just private health insurance costs. Costs have gone up for government-paid programs as well, which is why there is such focus on entitlement spending in the political discourse recently.

It is a real problem, but not one that rests solely on the shoulders of private insurance companies.

When I see a market behaving insane, I want to know what market incentives and government regulations are distorting it. In your case, the knowledge that you saw a specialist would make a logical underwriter raise the price, but you should be able to get insurance at some price.

The big regulation that I know of is the tax treatment that makes it much cheaper for insurance to be purchased through employers. This has prevented a robust individual insurance market from developing - it would be very costly for the insurance companies to build out this service for a small percent of the market.

The other major regulations that increase cost and reduce choice are required coverage regulations. There is always some heartstring pulling to get treatment X included in the required bundle.