There’s little doubt that the US health care system is not good. The US health care costs are around 20 percent of GDP, or $10,000 per capita per year. That’s unreasonably high compared to other developed nations. There are many reasons for this but the primary reason, as I see it, is the tacit collusion between the health insurance business, the hospital business, the pharmaceutical business, medical professional bodies, and governmental regulatory agencies.
Insurance has an important role to play in any large, modern society. Random events can be insured against in a population. Insurance distributes losses arising from random events across the insured population. Suppose in a population of 100 people, it is statistically certain that within a year one person at random would incur a loss of $200, then to cover that loss, if everyone paid an insurance premium of $2, then the loss can be spread over the entire population instead of just that unlucky person bearing the entire loss. In effect, everyone in the insured population bears a small definite loss so that no one bears a huge loss. When we buy insurance, we trade a guaranteed small loss against an uncertain big loss. Continue reading “What’s a good health-care system?”