Social Insurance: Buying in Bulk

The problem with on-your-ownership is a thing called a risk pool. Consider health care: When a government program like Medicare insures millions, prices can be kept low because actuaries know that only a small portion of the pool members will require hugely expensive treatment. But as a lone individual, solely responsible for your health care, you can't buy into a big risk pool like that.

You can buy into a smaller risk pool — a private health insurance plan. But because of their smaller size, private insurance providers and medical institutions must protect themselves against the calamity of too many of their claimants suddenly needing costly care. To cover this possibility, they jack up prices. If big costs occur, they are ready; if not, they make enormous profits. It's a win-win for them, but not for you. In cases like this, government can spend your money for you more efficiently.

Every red-blooded Costco shopper knows the value of buying in bulk; in effect, that's what government does when it comes to health care. Moreover, a big insurer like the government has the clout to negotiate prices, and you don't. That's why other countries with universal health care can cover everyone at much less cost and with consistently better outcomes.

Being insured against the vicissitudes of life is an important stress reliever and contributes mightily to happiness. When we asked random individuals about what the good life means to them, one young college student responded quickly: “Everything stable, nothing burning down financially,” she said.

Indeed, security is an essential component of the greatest good. An economy designed to make people happy should make people feel more secure, financially and otherwise, over time. Ours does not.

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