Social Insurance and American Health Care: Principles and Paradoxes

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      Social insurance, like commercial insurance, is about protection against financial risk. It is “insurance” in the sense that people contribute to a fund to protect themselves against unpredictable financial risks. These include outliving one’s savings in old age, the early death of a breadwinner, the onset of disability that makes work difficult if not impossible, the high costs of illness, involuntary unemployment, and work-related injury. Contributions are not prices in a market and so, unlike commercial insurance, are not higher or lower depending on the customer’s risk profile. Instead of a commercial insurance contract between enrollee and insurer, social insurance is for shared protection among participants in which they agree that each should pay for that protection according to their work income. The “insurer”—a government agency or, originally in Europe, a corporate body with a joint labor/management board—is the agent of the contributing enrollees. The social insurance contract, once created, cannot be voluntary and survive long. By law contributions are required, because otherwise adverse selection would be financially disabling.

      Social insurance, then, spreads the costs of coverage according to a different logic than that of commercial insurers. In commercial insurance, price must reflect risk. Social insurance, by contrast, operates on the premise that contributions are calculated according to one’s income and benefits are related to one’s needs. But the central political feature of social insurance is that the contributors are also beneficiaries. This is not the case with social assistance programs with means-tested eligibility standards. As important as such programs are for those who experience poverty, taxpayers do not in general identify with welfare beneficiaries. And, finally, private insurers, unlike governments, cannot tax citizens to make up for losses. But private insurers do routinely try to select customers with an eye to signing up those least likely to experience the risk the insurance policy is to mitigate. That’s why fire insurance is more expensive in poorer neighborhoods, not because insurance firms are racist.

      Jesus: Hey, Dad? God: Yes, Son? Jesus: Western civilization followed me home. Can I keep it? God: Certainly not! And put it down this minute--you don't know where it's been! Tom Robbins in Another Roadside Attraction

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