Health Insurance is Not a Toaster: The Two-Dimensionality of Healthcare

Josh Barro, writing for businessinsider.com, recently made the claim that private health insurance is "a government benefit provided through public channels". At the risk of opening myself to political argument, I'd like to address his major point, which is that health insurance is not a typical insurance product,  "designed to turn an individual's risk of loss into a predictable cost". I claim that it he is correct, but by changing the word "individual" to "group", changing the dimensionality of the insurance's target, he would be incorrect. 

Barro argues that sick people's benefits from health insurance exceed their monetized risk, and healthy people pay more than they actually expect to gain. This is a patently wrong conclusion: "broken" homes have "benefits" that exceed their homeowners monetized risk (homeowner's insurance policy), and "well-maintained" homes are on the opposite side of the spectrum. There just isn't a false equivalency here, as Barro explains it. 

So it is a bit striking that Barro is actually able to make his point well, because while, as he first explains it, health insurance is equivalent to homeowner's insurance, he accurately later points out that regulated health insurance:

a kind of shadow fiscal policy, redistributing income from the healthy to the sick

Buzzwords aside, simple insurance (Barro's homeowner's insurance) is fundamentally a functional agreement which takes present risk and monetizes it over a long period of time: in other words it spreads risk across one dimension. Since my home's risk of, say, termite damage is (largely) has a relatively small spatial covariance with other homes, my contract with an insurer is one-dimensional. I give the insurer money, and they spread my risk over time for a small fee.

In the health sphere, however, my personal risk of illness is considerably tied in to that around me. If you are not convinced, consider the rapid outbreak of swine flue, or peruse the wikipedia entry on epidemic, the common code, the flu, etc, etc... Not only do I encounter risk in terms of random fluctuations in my health over time, but also in the random interactions between myself and others. Health insurance requires a spreading of risk over two-dimensions, across time and between people. 

---

It is for this reason why, for health insurance to mean anything, it must be imposed on a supra-individual level, such as at the national level.  Because any one person's engagement in a health insurance scheme is an implicit contracted two-dimensional spreading of risk, they are effectively losing their insurance when other individuals fail to enroll. 

Capital-h Health, not health insurance, is what is not a toaster, and so to insure it is to contract in a two-dimensional relationship between individuals and with an insurer. Barro is (almost) right.