Before I get into this, let me say first that economists don't have a lot to say about income redistribution generally. Economics doesn't offer much guidance on whether taxing the rich to help the poor is a good idea or a bad idea. Different societies make different decisions on how much redistribution to do, and that's usually accomplished through the ballot box.
But there is one important sense in which any sort of insurance is a wealth-redistribution plan. And it's a form of weath redistribution that, for the most part, people engage in willingly.
Insurance redistributes wealth from the lucky to the unlucky.
How does this work? Think about your homeowner's insurance. If your house burns down, that's unlucky. But if you have homeowners' insurance, the insurance company is going to pay a big part of the replacement cost. Wealth has been redistributed (from somewhere) to you. And where does that wealth come from? People usually figure it's coming from an insurance company. And this is right, sort of, except for the fact that corporations are just legal shells that allow people to transact. The corporation's wealth has to come from somewhere. So where does the wealth come from?
Now think what happens if your house doesn't burn down. That's lucky, right?. But you still had to pay your insurance premium. And it's the premiums from the lucky that are transferred to the unlucky.
It's wealth redistribution, pure and simple.
So why do the lucky put up with it? Wouldn't they be better off refusing to subsidize the unlucky? Well, yes, and that's why we don't allow people to decide whether to buy insurance after they know whether they're lucky or unlucky. You can't go to Allstate and say "Hey, my house burned down last night. So how about a buy a policy that covered me starting yesterday?"
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I think your example of insurance is luck redistribution, and not wealth redistribution. You are just using the measure of wealth on the problem, not the measure of chance. The luck induces the measure of wealth, not the other way around, and therefore is the true measure.
You're right. Economists call it risk sharing, which is another way of saying "luck redistribution." Here, I'm specifically trying to point out that criticizing insurance reform on the grounds that wealth goes from Person A to Person B is basically the same as criticizing the whole notion of insurance.
The difficulty I see is that unlike homes where the lucky far outnumber the unlucky, at some point everyone will be unlucky when it comes to healthcare. So how does one redistribute the wealth when everyone's home is burning?
I don't have any numbers on this, but I am quite certain there is huge variation in health care expenditure across individuals. Some of us get cancer but most don't. Some of us are in bad car wrecks but most aren't. Some have bypass surgery but most don't.
It's true that we all consume some health care, but insurance should really be for the big stuff.
Coming from the life insurance industry, there's a saying that goes, I'm glad I have it but I hope I never have to use it. It's applicable to all insurance industries. With life insurance, it is guaranteed that we will all dies so there will be a payout. But with life insurance, we're banking on longevity. In order for the life insurance company to hedge their risk on someone dying too soon, they sell annuities, where they are banking on "shortgevity".
But in health insurance, there's no way to hedge except to exclude certain individuals. As an industry, this would work except for the mandatory requirement to provide someone with emergency service even if they are uninsured. This raises the costs for the doctors and hospitals, as they most likely will not be paid. As a result, they will have to raise their rates in order to absorb the costs, meaning they charge the insurance companies more. Insurance companies then have to raise their rates and it's a continuous cycle.
Insurance is wealth/risk distribution but I'm glad we have it. I gladly pay into it up to a certain point. i.e. benefit outweighs the risks.
The point that is being missed here is that the wealth redistribution in the healthare reform is coming in the way of taxation. The cry about redistribution is not in the fact that we have to pay a premium, it is all about the taxation. My real concern is that they're finding ways to pay for social programs we can't afford, yet they're unable to find ways to cover the massive budget deficit. If we raising taxes shouldn't we be balancing the budget?
The problem with your example of risk redistribution through home owners insurance is that it pertains only to individuals who actually own a home. Provided you don't have a lien on the home, it is completely your choice to have home owners insurance. It is voluntary. With health care reform, health insurance is mandatory, not voluntary. I don't cry out that I pay home owners insurance because I chose to buy a home and understand paying for insurance comes with the territory. I don't mind spreading the risk around and playing the insurance game because it is by my choice. This health care reform does not give me a choice. Oh ya, and we can't pay for it, just to rub salt in the wound.
I agree that insurance should be for the big stuff. In home insurance we don't expect the insurance to repaint the living room when our children use permanent marker on the walls.
The expectations for health insurance are out of balance. In 2009, the average premium was $6,328 for a family policy. That would be about $527 a month.
If health insurance wasn't for catastrophic coverage, one could choose not to pay for the coverage and visit the doctor up to 4 times a month (average of about $120 per visit). According to most current lines of thought, wouldn't that much "preventive care" ensure decreased overall medical lifetime costs?
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