I’m not sure where I’m going with this, but wanted to put some ideas out there.

In Economics-land, people behave rationally and work to maximize their utility.  Whatever that means.

For self-employed people who buy their own insurance, let’s say the average health insurance policy costs $1000 a year.  Healthy people, who expect their medical expenses to be far less than $1000 a year don’t buy the policy, or buy some cheaper high-deductible coverage to have in case of catastrophe.  Only the people who expect their medical expenses to be around $1000 or greater buy the policy.

Since the insurance company is only insuring the more expensive, unhealthy people, they find their costs increasing substantially, so the following year they raise the premium to $1500.  Now the moderately healthy people who expect their medical expenses to be less than $1500 opt out, and only the really unhealthy people continue to by the policy.

The following year, the insurance company realizes their expenses have again increased, paying out claims for the percentage of the population that has self-selected themselves as needing the most coverage.  So again the insurance company raises the premium, this time to $2000.

And so the cycle continues.  Insurance costs skyrocket while the size of the risk pool decreases and adds volatility.  And so far all parties have done nothing but act rationally.

A national health care system could potentially stop the cycle.  None of this “everyone must buy insurance” mandate garbage.  It’s a tax so why not just call it a tax and be done with it.  Everyone’s taxes pay into the system and everyone is covered.  By dramatically expanding the risk pool, the average cost of coverage goes way down, and by bringing 300 million people into one system you can substantially reduce overhead due to economies of scale.

The downside would be the young healthy people paying more than their “fair share”… for a while.  They lose out on some perceived freedom and disposable income.  But it’s no different from Social Security and Medicare, right?  The young and the strong subsidize the old and the weak?

Another positive would be for the companies currently providing health insurance for their employees.  This is a HUGE non-essential, non-business-related expense.  Relieving companies of their role as health insurance providers would free up a ton of capital and spark a new wave of economic growth as they invest in new products, markets, and workers.

The other thing I was curious about was whether removing the personal “cost” from the health care equation encourages irresponsible and unhealthy behavior.  In other words, am I avoiding the terrain park on the ski hill because I have crappy insurance and one wrong move could cost me a broken leg and thousands of dollars?  Or, under a nationalized system, am I going to chow nothing but dollar menu double cheeseburgers because I know my coronary bypass is covered?

Based on what I could find about countries with such a system already in place, the answer is no.  There is no evidence to suggest that a universal health care system increases X-games-type activity per capita or leads to increased McDonald’s consumption.  Even though the economic “cost” of these risky and unhealthy activities may be diminished, the “pain/health” costs remain.  In the end, the incentive to remain healthy for the sake of being healthy seems to be incentive enough.

There seems to be a great fear about “not getting your money’s worth” out of a national health care system.  This seems kind of perverse, since only the sickest among us will be getting their money’s worth, and I’m just guessing they would gladly trade places with you.

Still, this post contains a lot of “perfect world” assumptions and given the government’s track record for running things efficiently, a double dose of skepticism is required.  But, like a lot of things, “in theory,” it could work.

Disclosure: I count myself among the young and healthy, so this policy would almost certainly make me worse off in the near term.  I buy my own  insurance.  It’s $57/month and I’m thankful I don’t “get my money’s worth.”

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