What’s the Point of Insurance if it’s Not Socialism?

This post is derived from a conversation I had on Facebook with a middle-aged Californian.

Q: What’s the point of insurance if you can’t force people to cover treatments they’ll never use (e.g. charging men for women’s birth control pills)?

A: Are you saying that you do not understand the difference between managing risk and redistribution of known costs? I can explain this to you.

Think about how your car insurance works. It insures you against collisions and the associated liability- a situation that has a low chance of occurring, but is associated with high costs. When you pay your premiums, you are buying the mitigation of risk. If you have a 5% chance of incurring $20,000 in damages each year, then your customer group is costing the insurance company an average of $1000/year. So they charge you $1170/year, spending 15% on bureaucratic overhead, and walking away with a 2% profit margin for the service of converting your individual risk into a certain, statistically-weighted charge.

But in situations where the chance of a cost being incurred are either 0% or 100%, it makes no sense to buy insurance. If the chance is 0% (e.g. the chance of a man needing an abortion, or the chance of a woman needing Viagra), then your risk is zero, and the insurance company has nothing to offer you on that plan. If the chance is 100% (or you have control over the event’s occurrence), such as with birth control pills that you know you want, or that vasectomy that a guy chooses to get at a particular time in his life, then the premium cost associated with the service will be the cost of buying it without insurance, plus 15-30% bureaucratic overhead, plus 2-5% profit. In these cases, you already have complete control over the costs, yet you’re paying the insurance company extra to manage no additional risk. Financially, this is not a smart decision.

However, you seem to want people who have zero risk to share your known (100% chance) costs. This is not insurance. This is known as “social ownership” of costs. Social ownership is always advantageous to those who spend more and contribute less, and disadvantageous to those who are more responsible with their cost-management. There are only 3 cases I can think of where this sort of arrangement happens voluntarily for a long term: marriages, corporate ownership, and socialist communes. These arrangements only survive if they are very selective about who is allowed to participate, and have established mechanisms for removing (divorcing) members who take advantage of the contract without contributing much in return. Otherwise, the best members will always leave first, collapsing the arrangement.

When you use government force to mandate social ownership of costs throughout an entire society, that is known as “socialism.” In this case, there is no check on the behavior or character of participants. There is no mechanism for removing bad actors from the arrangement. It’s like being stuck in 300 million bad marriages all at once…unless you’re the one being a bad partner. This system violates the human right of free association, incurs unnecessary bureaucratic overhead costs, reduces productivity, reduces innovation, and ultimately reduces prosperity for everyone involved.

So if you’re seeking social ownership, insurance companies are not the institution you’re looking for. Let insurance companies sell insurance, and get your desire for social ownership fulfilled through family, communes, or (if you think your desired organizational structure is more efficient than existing companies) start a corporation. Don’t try to force insurance companies to be something they’re not, and don’t try to force us all to participate in a social ownership plan that some of us really don’t want to be a part of. Involuntary association of that nature will only make us all poorer.

UPDATE: She responded that I was “mansplaining” to her, and argued that because birth control “is a basic part of health care,” insurance must cover it, completely ignoring my argument. Logic and reason doesn’t get through to these socialist idiots. They only understand the fear of having their own smears turned back against them. So I called her a bigot for trying to use my gender to demagogue me into silence through that misandrist term. That’s when she “lost interest” in the conversation…meaning she no longer had any way to maintain dignity while making her argument. This is just about the best outcome that can be hoped for with people like this- they’ll never admit they’ve lost the debate, but they’ll be too embarrassed to make those arguments in public again.

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