Health Insurance's Ideological Divide

Can right and left ever agree about health insurance reform?


Health insurance companies (or the big ones, at least) want whatever Frankenstein-esque monster bill that emerges from Congress's health reform debate to require everyone to buy health insurance. Bryan Caplan has a must-read post on what he sees as the main intellectual justification for mandatory health insurance.

Shorter version of Caplan: The standard criticism of markets in health insurance harps on a phenomenon called adverse selection: relatively healthy (low-risk) people will find health insurance too unaffordable for them, because the premiums are inflated by all the relatively unhealthy (high-risk) people buying insurance. These healthy people will drop out of the market, and thus premiums will inflate further still for high-risk people left in the pool.

Caplan responds that the solution of mandatory insurance does not actually do anything about this problem, because insurance companies really can tell who the low-risk people are, and charge them lower premiums accordingly.

So he says the real "intellectual" (scare quotes his) justification for mandatory insurance and other health-care regulations is the concern that "big bad insurers won't cover people unless it's profitable."

Here's my question to Dr. Caplan: But far from being populist anti-intellectualism, isn't the objection that "poor people will not be able to afford health care in a free market and so the sick ones will die" a very real challenge that requires a response? Does the fact that, by Caplan's own admission, a free market in health insurance would underserve sick people show a real problem with the laissez-faire approach?

I would pose to Caplan a question that Ezra Klein, a good representative of the anti-free-market view on health care, asked on his blog recently:

Are we really sure we want a bustling market in how to cleverly revoke the insurance of people who prove to be sickly?

I don't ask this question to try to prove Caplan wrong or because I don't think the laissez-faire side has a good response. I'm genuinely curious because I don't think supporters of free markets in health insurance answer Klein's question directly often enough.