Teaching Economics

It's amazing to me that economics is not taught to our children as a matter of course. It's been that way forever, but a couple of things happening these days, demonstrate just how desperate the situation has become. One of those things is the "popularity" of a feature on healthcare insurance that does not allow insurers to discriminate against people with pre-existing medical conditions.

The pre-existing medical exclusion was of course a key feature of Obamacare. And it turned out to be so "popular," that even Republicans are trying to include it in their version of a health care law. I keep putting popular in quotation marks because that has been the justification for keeping the feature. Some polls I have seen, have a majority of people favoring this aspect of health insurance. But all that really tells me is that a majority of people don't really understand how insurance works.

If a lawmaker was to propose legislation that would allow you to accumulate traffic tickets and go without car insurance, yet allow you to acquire insurance after you had a wreck, (and at the same premium price as a driver with no tickets or crashes,) I have no doubt whatsoever that it would be extremely popular. Another popular product would be homeowners insurance that you could buy after your house is set ablaze, destroyed or burglarized. It would sure save me a lot of money. I mean don't you feel like you've just wasted all that money paying premiums when you never get to collect? It would be "popular," right?

Are you starting to get the feeling that popularity may not be the key metric here?

The idea of insurance is to spread the risk. A group of people pool their resources and commit to helping those in the group who are visited by misfortune, be it an illness or natural disaster, but not knowing in advance who that will be. That's how the risk is "spread." They all pay the same price because they all have the same risk of experiencing misfortune. Now if facts become known that change one's level of risk, then they need to be in a different pool with people who are at similar levels of risk. So if you get a lot of speeding tickets, or have a number of crashes that are your fault, you are bumped up to a higher risk pool, with the attendant higher premiums.

If you insist that the risk be removed from buying health insurance by excluding pre-existing conditions, it ceases to be insurance. It is now pre-paid health care, and it is a LOT more expensive for everybody. The premium you pay now for homeowner's insurance is relatively cheap. You can insure a $300,000 home for less than $1,000/year. But if you could buy it after the fire, it would cost roughly $300,000. It would have to be.