Student engagement and campus design

It's the season to add dorm space. Maybe it can be done in a way which enhances engagment and connections. We'll see.

Here's my contribution.

Why health care markets fail

Thoughts on why your a priori beliefs might be that health care markets would fail:

 

1. Individuals are not wired to deal rationally with risk. To some extent we manage this through insurance. But think about how they operate:

 

Low probability in the short run (at least for younger individuals). Think about what we do for

auto insurance: the state requires you have it in order to drive a vehicle.

 

home insurance: the holder of your mortgage requires it.

 

How many people would in fact choose not to purchase auto or home insurance if not forced to?

Now think about very high probablity events in the long run (but only for a relatively short period at the end of life).

We deal with other high probability long run needs through a variety of forced or strongly encouraged "voluntary" systems: that would be social security and pension/defined contribution plans, respectively.

 

Conclusion: not very much insurance coverage is "voluntary."

 

2. Lots of medical care is predictable, and thus can't be insured. That is, costs can't be spread out across individuals by insurance. For example, keeping a type I diabetic going is simply going to cost a whole lot. There are really only two options (for the situation of an average income individual):

the individual does not receive significant amounts of care and dies young.

 

society subsidizes care through forced contributions from everyone else.

 There is little way that private insurance can reasonably address this situation.

 

 

3. Asymmetric information. Related to (2), insurance firms are likely to have a very good idea what you will cost them in the future, but you may have much less idea. Those who are most likely to need insurance coverage of future costs are thus most likely to not have that coverage. Insurance firms will work hard to only cover low risks. This is called adverse selection, and is really the basic business plan in health insurance.

 

Most commonly talked about is the reverse of this: you know about a medical condition which an insurance company does not. This is classis moral hazard and drives up costs for everyone else (thus making insurance less available).