It's called "insurance" ...

for a reason. See, insurance is designed to protect you from financial hits that you cannot afford to weather on your own. Many people overinsure and try to protect themselves from everything bad that could ever possibly happen: events that either are almost certain not to occur or are things they could afford to pay for themselves. Other people (rationally or not) choose to underinsure -- figuring the dreaded event will not occur or thinking they can afford the risk. Sometimes they are wrong.

I got to thinking about this as I watched the news this morning. I'm sure you've all heard the story of the woman who was trapped for 8 days in her wrecked SUV. Yes it was an awful ordeal and a miracle they found her. Yes the authorities probably should apologize and review their procedures for launching missing person searches. This morning, though, there was a tearful interview with the husband on one of the morning shows. The focus of the story was that the woman does not have insurance and the MASSIVE medical bills will likely cripple the couple. Why does she not have insurance? Well evidently she was in line to get insurance (through her work I guess?) in a few months, so she told her husband not to worry about adding her to his policy at work.

They didn't actually come out and say this, but the implied tone of the story was that it's just awful that a family would find themselves in such a situation and isn't it a shame that we don't have a national healthcare system that would prevent such tragedies. Now I personally don't understand why we continue to insist on linking insurance coverage to places of employment and I could pretty easily be convinced that we might ought to experiment with some form of national health care, but I'm not sure this woman is the best poster child for the movement.

Remember, she had the option to be insured through her husband. Why didn't she take it? I can only assume it was to save money. So were these desperately poor folks who couldn't afford insurance? No, they're a fairly young couple (she's 33) who recently bought a house and still had approximately $60,000 in savings. They made a decision, which seems irrational only in hindsight, that the probability of a young woman having such a catastrophic medical emergency in the few months before getting her own insurance was small enough to bet against. We all make decisions like that all the time. In this case the decision turned to be ENORMOUSLY, STUPENDOUSLY bad, but it was a decision they made on their own, not out of some financial desperation. I feel incredibly bad for the couple, but I don't think this is a case of market failure. It's a case of incredibly bad luck and a poor (in hindsight) choice.

Of course I was once the beneficiary of an incredibly stupid insurance program. I have DISH Network TV service and, of course, I chose not to buy the optional $5-per-month insurance. After a year or so, though, a tree fell and took out my DISH. I called to get someone to come out and fix/replace it and the guy on the phone kept talking about how I didn't have the insurance so it was going to cost me a couple of hundred dollars, at best. After he'd told me this a couple of times, I told him I realized NOW the insurance looked like a good deal, but I didn't have it. That's okay, he said, why don't you just sign up for it now? I pointed out to him that it wouldn't do me much good since the accident had already occurred. That's okay, he said, "they" won't know that you bought it after the fact! So I signed up, but I do realize that's not how insurance works. If it did, no insurance company would be able to stay in business.

So while I'm not generally in favor of government mandated behavior, perhaps a minimum level of mandatory (once you meet some minimum income threshold perhaps?) catastrophic coverage is necessary to avoid the moral hazard problem created by situations like this. Hmm, something to think about on a Friday.