Something I always thought would signal the economic end of the world has come to pass: We are on the verge of seeing the abandonment of the very idea of insurance.
I always thought one of the most alarming things about the Clintons was their belief that insurance companies should stop charging people higher premiums if they’re in higher risk categories (such as possessing pre-existing conditions). No one ever wants to pay a cent more for anything, of course, but the whole point of insurance is that each party in the transaction is making a bet based on risk assessment, and without that — and the wonderful, socially-beneficial incentive effects it creates (such as discouraging being a smoker) — insurance really does not exist at all. Welfare, maybe. Disaster relief. But not insurance.
Well, pressured by the government, a group of insurance companies, in typical self-destructive cowardly corporate fashion, is now offering to preempt further government regulation by “voluntarily” ceasing to charge riskier, sicker people more. Of course, that just means having to charge everyone more to compensate, which you’d think would cost the insurance companies some business. Ah, but they’ll only stop the risk-rating if government goes forward with Obama’s plan to mandate health “insurance” for all, the government presumably subsidizing it for those who can’t afford it. In other words, the insurance companies have decided to become a form of welfare (and thus an arm of the state) instead of a form of risk-rating hedging, as long as they’re guaranteed to come out of it with more customers.
Pathetic — and to me, particularly sad, since I’ve long said that insurance actuarial tables are the single most rational thing about the human race: real probabilities instead of wishful thinking, paranoia, hunches, prejudices, or egalitarian pretenses. (And Mom is a former insurance office manager, I admit.) This news about not charging anyone more, then, is a bit like the stock market announcing that by legal fiat (and through government subsidy) there will no longer be losses — great news for about five minutes, and then reality crushes civilization like a deranged bug. (Not to be confused with a gold bug, which is probably what the survivors will have been.)
Not everyone sees the tidy connection between actuarial thinking, risk-taking, markets, and the moral responsibility to pay for your own messes that I do, of course (and if you assume I do see a tidy chain of connections there, it makes a lot more sense of my combination of robotic rationalism and conservative moralism, for anyone who still finds that confusing). Megan McArdle is lazily thought of as more-or-less-libertarian but has, I think, a much stranger and more complex underlying philosophy of risk than the one underlying this humble blog post.
You may have noticed she was an early proponent of a banks bailout (though not quite of the sort that came to pass), is keener to take measures against global warming than most libertarians, favored mandatory health insurance purchases before it was cool, thinks the industrial revolution never would have happened without the principle of limited liability, likes sumptuary laws believe it or not, yesterday even suggested that capital moving around the globe might be too destabilizing (I mean, heck, having an economy is a risk, too), and in general is more sympathetic than most libertarians to macroeconomics-influenced (and business school-inculcated) notions about there being optimal levels of investment and risk-taking for society as a whole that may not jibe with individuals’ own preferences.
We need the risk-takers even when their risk-taking is irrational from an individual cost-benefit perspective, I think she’d argue, a position that could even logically lead to “subsidizing entrepreneurship” in some cases, absent an accompanying fear of government bungling. (This is not so unlike Adam Smith’s view in Theory of Moral Sentiments, by the way, that entrepreneurs are often crazy or emotionally dysfunctional people but ones for whom the rest of us should be very, very grateful. Really, he said that, I swear.)
Add to all this the fact that Megan admits to being a bit neurotic and hypochondriac (I’m not badmouthing, just summarizing), and you get a picture of someone with almost a “precautionary principle” approach to economics and other big systemic issues, at least as compared to most of us rootin’-tootin’, let the chips fall where they may, laissez-faire libertarians, if I’m understanding it all.
But without going as far as my girlfriend Helen Rittelmeyer, who sometimes suspects we’d be better off if we simply stopped using statistics (a radical view you can discuss with her after you hire her to be your best assistant editor), I’m more and more inclined to think, in anarchist fashion, that any talk at all about what the social system as whole “should” do is a formula for disaster or at best disappointment (I for one wasn’t surprised the real bailout was a stupid one — were you?). The optimal savings rate — or the optimal level of health insurance — is probably whatever the hell happens when society becomes libertarian enough to stop talking about “what everyone else should do” in some broad macro sense, because that always ends badly. Doesn’t logically have to end badly. Just always does.