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Insurance Explained
With an Emphasis on Pre-Existing Conditions

It is impossible to insure a pre-existing condition. The concept of insuring a pre-existing condition is as nonsensical as insuring an already-stolen iPhone, an already-burned-to-the-ground house, or an already-wrecked automobile. Insurance requires the presence of some level of improbability. If the probability is 100% you lack the fundamental condition necessary to insure anything.

An insurer — whether organization or individual — calculates the cost and likelihood of a negative outcome (such as an iPhone theft or an automobile accident) for the person who wants to protect themselves against the consequences of that particular outcome. If the average student has a 10% probability of loss, damage, or theft of their iPhone in the span of 1 year, and the cost to replace it is $500, then a statistically significant group of students might be able to insure their iPhones at $50 each per year.

Imagine, though, that a certain group of students were guaranteed to all lose their iPhones in the same year. Would you insure them each for $50 each that year? If so you did be in trouble, because the cost for insuring each of them would be $500: 10 times what they paid you. Nobody can sustain that kind of negative cash flow for any substantial amount of time.

Pre-existing conditions are no different. A person with a 100% guaranteed health care cost of $100,000 per year wants you to insure them for $1,000 per year. You can do that if you really want, but you'll be losing $99,000 per year. The risk is 100%. There is no chance of a positive outcome. If you aggregate the risk over a large enough sample of people with the same condition the risk will still be 100%. If you mix the 100% risk of those with a pre-existing condition with the rest of population then you will only end up raising the total risk of the entire population which will require that you charge them all higher rates. That wouldn’t make sense for them or you, and you would lose your insurance business to someone who exercised better judgement.

Even the popular idea of health insurance for regular checkups, routine visits, and common health nuisances is absurd. If you are guaranteed to spend $1,000 in normal health expenses this year, then what are you insuring? It is more like a payment plan, and not only does it carry administrative overhead, but by placing a barrier between the provider and the payer it lessens the need for health care providers to keep their prices low.

With these things in mind, how much sense does mandating health "insurance"make? Especially with prohibitions against discrimination regarding pre-existing conditions. This only forces insurance companies to lump high risk patients with medium and low risk patients and charge them all a higher rate. Such a system penalizes low risk individuals for being healthy, and rewards high risk individuals for being sickly. Not all pre-existing conditions are preventable, but many can be prevented or alleviated with a healthy and disciplined lifestyle. Disconnecting people from the costs of their choices prevents them from learning those lessons.

But the people advocating these policies are not after insurance at all, are they? No, rather they are advocating an expanded welfare system. And so we are faced with the same question that ought to be asked in all discussions of policy. Is it right for us to force other people to live by our own values? Is it moral for us to rob others to fund our own utopian fantasies? Can the ends sought justify these means? And are these ends being sought after the same ends that will be realized? From my perspective, no in all cases.

When it comes to insurance the solution is very simple. Insurers must be free to calculate and mitigate risk at their own discretion, and nobody should be forced to pay for anybody else.