The Problem of Risk

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I confess to receiving Social Security and Medicare and being a plausible candidate for a “death squad.” I might make excuses for myself, but why bother? Even a scoundrel’s ideas may be worth something.

What should be done about people with expensive “preexisting conditions”? Should the government decree that health-insurance companies stop “discriminating” against them?

A mandate to insure all applicants impartially would run counter to the very idea of insurance, which is to spread individually unpredictable risk over many participants in the form of insurance premiums. An insure-all mandate would transfer wealth to a company’s most costly applicants, who would have a much stronger incentive to buy policies than healthy persons. A mandate could hardly be applied only to some insurance companies, because they would be inundated by sick applicants, to the benefit of insurers escaping the mandate.

Mitigating this “adverse selection” would require insuring all members of large groups, such as all employ- ees of large companies. (But employer-linked insurance, a legacy of World War II wage controls, has disadvantages of its own.) Anyway, requiring mass participation in insurance would mean coercion.

The problem of preexisting conditions may have been less urgent in the past, when inter- and intragenerational solidarity in large families was stronger than nowadays and when fewer high-tech medical treatments were avail- able. The problem is particularly dramatic in families with physically or mentally handicapped children who will require expensive treatment and care for their entire lives. Intuitively, it seems unfair that these children and their parents should have to suffer the capricious blows of fate without being able to insure against even the monetary costs of those blows. Yet requiring private insurance companies to bear those costs would presuppose oppressive regulation or government subsidies. A drift toward government-monopolized health insurance then seems almost inevitable.

Arguably, were it not for constitutional restrictions, the federal government has a moral duty to provide the otherwise missing solidarity of nationwide risk-sharing. Libertarians, agreeing with John F. Kennedy that life is unfair, might reply that government has no business try- ing to straighten out the unfairnesses of life. But they should then be ready to deal with the reactions that this reply is sure to draw.

Who knows what solutions private enterprise might have devised if decades of government regulation had not forestalled them? But regrets about the past are no answer to today’s dilemma. Not knowing, or not yet knowing, the solution to a problem should not bar recognizing it.

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