Is insurance a form of Socialism?

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Steve3007
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Is insurance a form of Socialism?

Post by Steve3007 » October 13th, 2017, 4:46 am

The essential ingredient in the concept of insurance is the pooling of risk. In order for any insurance system to work there has to be at least some extent to which the fortunate pay the expenses of the less fortunate. If the fortunate are able to choose an insurance scheme in which they minimize their premiums by only sharing risk with those who have similar fortunes to themselves, can that work? In the specific case of healthcare, can that work? Is it desirable?

There are some kinds of insurance that we are legally or contractually obliged to take out. Where I live, this includes 3rd Party car insurance (legally, if you drive a car) and buildings insurance (contractually, if you have a mortgage on your home). It also effectively includes health insurance (via compulsory taxes which are, effectively, health insurance payments.)

Is this right?
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Burning ghost
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Re: Is insurance a form of Socialism?

Post by Burning ghost » October 13th, 2017, 7:25 am

It's a "legal" con.
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Steve3007
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Re: Is insurance a form of Socialism?

Post by Steve3007 » October 13th, 2017, 7:35 am

What's a legal con?
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Burning ghost
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Re: Is insurance a form of Socialism?

Post by Burning ghost » October 13th, 2017, 10:02 am

I mean a con that is legal? What did you think I meant.

So I don't see it as a form of "socialism" at all. If anything it is a capitalist idea.
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Steve3007
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Re: Is insurance a form of Socialism?

Post by Steve3007 » October 13th, 2017, 10:09 am

I meant: What does does the "it" stand for. Your answer is that it stands for insurance.

Obviously I disagree that insurance is a legal con. Why do you think it is?
"Even men with steel hearts love to see a dog on the pitch."

Burning ghost
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Re: Is insurance a form of Socialism?

Post by Burning ghost » October 13th, 2017, 10:24 am

I regard anything that plays on people's fears in order to gain a profit a form of con.
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Steve3007
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Re: Is insurance a form of Socialism?

Post by Steve3007 » October 13th, 2017, 10:29 am

I don't think there is anything in the concept of insurance that is playing on people's fears. I think it just means entering into an agreement to pay a relatively small amount of money in exchange for a relatively large amount of money if an unlikely event happens. No different, in principle, to betting on a horse. But more useful.

-- Updated Fri Oct 13, 2017 3:31 pm to add the following --

It's main effect is to reduce fear by reducing uncertainty.

-- Updated Fri Oct 13, 2017 3:43 pm to add the following --

I compare insurance to socialism because they both involve the pooling of risk, the smoothing out of bumps (inequalities) and the fortunate subsidising the unfortunate.
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GE Morton
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Re: Is insurance a form of Socialism?

Post by GE Morton » October 13th, 2017, 9:23 pm

Steve3007 wrote:The essential ingredient in the concept of insurance is the pooling of risk. In order for any insurance system to work there has to be at least some extent to which the fortunate pay the expenses of the less fortunate. If the fortunate are able to choose an insurance scheme in which they minimize their premiums by only sharing risk with those who have similar fortunes to themselves, can that work? In the specific case of healthcare, can that work? Is it desirable?
"Fortunate" and "unfortunate" are ambiguous terms. The terms can be used to denote the better off and the less well off, respectively, or the winner and loser of, say, a poker round, respectively. In your insurance context only the second applies. If we both buy fire insurance and my house burns down and yours doesn't, then you're fortunate and I'm unfortunate. But you're not necessarily better off than me.

Unlike "socialism" or Nanny-state "safety nets," insurance, properly managed, does not involve subsidies. Better off members of the risk pool do not subsidize less well-off members. Pool members pay premiums based on the extent of risk* they present. If I have a history of traffic accidents and tickets, and you have a clean driving record, I'll pay more for auto insurance than you. If you have a $500,000 house and I have a $200,000 house, you'll pay more for fire insurance than me. In a free, rational market, older persons and persons with pre-existing conditions will pay more for health insurance than younger, healthier people --- because, like the bad driver and the owner of the more valuable house, they present greater risks.

As for whether free market insurance can work for health insurance, of course it can --- it worked for decades until the emergence of the Nanny State, beginning in the 1930s.

* Risk is the product of the magnitude of a loss X the probability that it will occur.

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LuckyR
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Re: Is insurance a form of Socialism?

Post by LuckyR » October 14th, 2017, 1:19 am

Steve3007 wrote:I don't think there is anything in the concept of insurance that is playing on people's fears. I think it just means entering into an agreement to pay a relatively small amount of money in exchange for a relatively large amount of money if an unlikely event happens. No different, in principle, to betting on a horse. But more useful.

-- Updated Fri Oct 13, 2017 3:31 pm to add the following --

It's main effect is to reduce fear by reducing uncertainty.

-- Updated Fri Oct 13, 2017 3:43 pm to add the following --

I compare insurance to socialism because they both involve the pooling of risk, the smoothing out of bumps (inequalities) and the fortunate subsidising the unfortunate.
Your analysis is the best description in the thread so far. One additional facet on the topic is the question what are you purchasing when you buy insurance? Obviously you are buying benefits if you have a claim, however you are also buying peace of mind, thus why even if you never make a claim you are still receiving something from the policy.

If you don't like the idea of insurance, you can go bare, but if you can't cover your expenses and take refuge in bankruptcy court, the taxpayer and the customers of your creditors pick up your tab, we prefer you pay your premiums than leave us to pick up your mess.
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Burning ghost
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Re: Is insurance a form of Socialism?

Post by Burning ghost » October 14th, 2017, 2:50 am

My view is a cynical one. I perfectly understand the advantages. I guess like every idea it has its advantages and disadvantages. The incentive for profit is what makes me pose such a strong opposition to it as being part of "socialism". I think viewing it more like the mutant child of capitialism and socialism may be more honest.

I don't view it as a product of "socialism", but it is a very interesting comparison to make.
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Londoner
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Re: Is insurance a form of Socialism?

Post by Londoner » October 14th, 2017, 4:34 am

GE Morton wrote: In a free, rational market, older persons and persons with pre-existing conditions will pay more for health insurance than younger, healthier people --- because, like the bad driver and the owner of the more valuable house, they present greater risks.

As for whether free market insurance can work for health insurance, of course it can --- it worked for decades until the emergence of the Nanny State, beginning in the 1930s.

* Risk is the product of the magnitude of a loss X the probability that it will occur.
Except that if we could calculate risks in that way then insurance would not work. If we could clearly identify all the good drivers, why would they want to be part of an insurance scheme that covered bad drivers? Why not form their own scheme, where the premiums would be lower? Although then the worse drivers would no longer be able to get any insurance at all, or their premiums would be so high they would avoid paying.

That would be fine - except that the good drivers and the bad drivers would still interact on the roads. The good drivers' premiums cannot just reflect their abilities because they would also have to cover the cost of an accident with an uninsured bad driver. Thus, although there is an element in insurance that reflects how good a driver we are, and the value of our car, it is compulsory because driving is an activity where one person's action affects another.

The same is true of health. It is in my interests, as a healthy person, that sick people are treated. So insurance - and socialism - is a recognition that sometimes it is in our individual interests to support society as a whole.

Steve3007
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Re: Is insurance a form of Socialism?

Post by Steve3007 » October 14th, 2017, 7:22 am

G E Morton:
"Fortunate" and "unfortunate" are ambiguous terms. The terms can be used to denote the better off and the less well off, respectively, or the winner and loser of, say, a poker round, respectively.
Yes, it's an interesting fact (which I heard discussed by a celebrity philosopher the other day!) that a long time ago people who had fallen on hard times were often referred to as "poor unfortunates". That term sounds archaic now. These days, such people are usually referred to as "losers". A strong shift in the assignment of blame. The current US president, for example, clearly sees "loser" as the worst kind of insult to fit the worst kind of crime: failure.
Unlike "socialism" or Nanny-state "safety nets," insurance, properly managed, does not involve subsidies. Better off members of the risk pool do not subsidize less well-off members. Pool members pay premiums based on the extent of risk* they present. If I have a history of traffic accidents and tickets, and you have a clean driving record, I'll pay more for auto insurance than you. If you have a $500,000 house and I have a $200,000 house, you'll pay more for fire insurance than me.
If this principle is taken to its logical conclusion then it wouldn't be insurance at all because each person would be in a "pool" of one person - the one person with precisely that level of risk. That doesn't happen. Assessing the level of risk, and placing people with similar but not exactly the same risk in their own pools reduces the size of the pool but it doesn't change the general principle of pooled risk and subsidy.

As Londoner points out in a later post, the people in the different pools still have to live together and interact.
As for whether free market insurance can work for health insurance, of course it can --- it worked for decades until the emergence of the Nanny State, beginning in the 1930s.
I guess you're talking about the US here, and the 1930's Roosevelt "New Deal" thing. I don't know enough about that case to be able to see why you think the above is true. Could you elaborate?

LuckyR:
One additional facet on the topic is the question what are you purchasing when you buy insurance? Obviously you are buying benefits if you have a claim, however you are also buying peace of mind, thus why even if you never make a claim you are still receiving something from the policy.
Yes, or to put it another way, your insurance premium acts to smooth out the financial peaks and troughs of life. That's what you're buying. I guess the extent to which you like insurance (and socialism?) depends a bit on the extent to which you prefer the safety of smoothness to the excitement of uncertainty and big peaks and troughs.
If you don't like the idea of insurance, you can go bare, but if you can't cover your expenses and take refuge in bankruptcy court, the taxpayer and the customers of your creditors pick up your tab, we prefer you pay your premiums than leave us to pick up your mess.
This (I think) is one of the reasons why a certain amount of this "leveling off" makes the world a better place for everyone to live in, including those that "lose" as a result of this leveling. This leads into the subject of whether any elements of socialism are desirable or whether the unfettered free-market principle whereby everybody should be "left alone so long as they don't harm others" works best.

It depends on the kind of society we want to live in.

Burning ghost:
My view is a cynical one. I perfectly understand the advantages. I guess like every idea it has its advantages and disadvantages. The incentive for profit is what makes me pose such a strong opposition to it as being part of "socialism".
Yes, I agree that the comparison with socialism doesn't entirely work. Only partially. The title of the topic was partly a conceit to start the conversation going.
I think viewing it more like the mutant child of capitialism and socialism may be more honest.
Interesting image!
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GE Morton
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Re: Is insurance a form of Socialism?

Post by GE Morton » October 14th, 2017, 10:57 am

Londoner wrote:Except that if we could calculate risks in that way then insurance would not work. If we could clearly identify all the good drivers, why would they want to be part of an insurance scheme that covered bad drivers? Why not form their own scheme, where the premiums would be lower?
First, we can clearly identify all the good drivers. We look at their driving records. And if they're new drivers, i.e., young people, then we set their premiums based on the mean loss rate for their age group and location. And the good drivers are indifferent to whether bad drivers are admitted to the pool, because the latter pay the additional premiums necessary. The premiums of the good drivers are not affected.
That would be fine - except that the good drivers and the bad drivers would still interact on the roads. The good drivers' premiums cannot just reflect their abilities because they would also have to cover the cost of an accident with an uninsured bad driver.
That is true, which is why most auto policies include uninsured motorist coverage for a (fairly) small additional premium. The amount of that premium reflects the diligence of the State in keeping uninsured drivers off the road.
Thus, although there is an element in insurance that reflects how good a driver we are, and the value of our car, it is compulsory because driving is an activity where one person's action affects another.
Virtually all human activities in a social setting affect others. Auto insurance is only compulsory if you operate your vehicle on public roadways. It is a condition for the use of that public property.
The same is true of health. It is in my interests, as a healthy person, that sick people are treated. So insurance - and socialism - is a recognition that sometimes it is in our individual interests to support society as a whole.
Unless the sick person suffers from a communicable disease which might infect you, the interest you assert is not economic. If that interest springs from some private morality you embrace, then you can contribute to a charity devoted to that cause. But the State has no business imposing those obligations on others who do not embrace that private morality.

BTW, society "as a whole" has no interests. The only interests to be found in any society are the interests of its individual members, which differ from person to person.

-- Updated October 14th, 2017, 11:45 am to add the following --
Steve3007 wrote:
If this principle is taken to its logical conclusion then it wouldn't be insurance at all because each person would be in a "pool" of one person - the one person with precisely that level of risk. That doesn't happen. Assessing the level of risk, and placing people with similar but not exactly the same risk in their own pools reduces the size of the pool but it doesn't change the general principle of pooled risk and subsidy.
That doesn't follow. It doesn't matter what level of risk the individual brings to the pool, as long as each pays a premium reflective of that risk.
I guess you're talking about the US here, and the 1930's Roosevelt "New Deal" thing. I don't know enough about that case to be able to see why you think the above is true. Could you elaborate?
Prior to WWII Americans paid 90% of their health care costs out of their pockets. If your kid fell out of a tree and broke her arm, or you needed a course of penicillin to treat bacterial pneumonia, you paid the doc when you left the clinic. If they carried insurance it was "major medical," which kicked in when expenses exceeded some (fairly high) threshold. Comprehensive health insurance became popular during WWII. Because so many men were overseas fighting the war, labor was scarce. But wage and price controls were in effect, and employers could not offer higher wages to attract workers. But fringe benefits were not covered by the controls. So employers began offering comprehensive health insurance policies. Then the government began covering the heath care costs of many people, via Medicare and various welfare programs. As a result, only about 15% of health care costs are now paid out of the patients' pockets (which includes insurance premiums, co-pays and deductibles), and many people now believe that someone else is responsible for their health care, that they have "right" to health care. Which, of course, they don't.

Londoner
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Re: Is insurance a form of Socialism?

Post by Londoner » October 14th, 2017, 2:12 pm

GE Morton wrote: First, we can clearly identify all the good drivers. We look at their driving records. And if they're new drivers, i.e., young people, then we set their premiums based on the mean loss rate for their age group and location. And the good drivers are indifferent to whether bad drivers are admitted to the pool, because the latter pay the additional premiums necessary. The premiums of the good drivers are not affected.
It works better if you read the whole post, rather than replying to each sentence one at a time.
Virtually all human activities in a social setting affect others. Auto insurance is only compulsory if you operate your vehicle on public roadways. It is a condition for the use of that public property.
Yes, I am aware of that.
Unless the sick person suffers from a communicable disease which might infect you, the interest you assert is not economic. If that interest springs from some private morality you embrace, then you can contribute to a charity devoted to that cause. But the State has no business imposing those obligations on others who do not embrace that private morality.
That assumes first that we can know which sick people have diseases are communicable. To find that out you need to provide a health service.

It also assumes that the person makes no economic contribution to society. If firms have to pay the costs associated with sick staff, ultimately that cost gets passed on to the consumer. If the employee has to buy health insurance, they need higher wages and that cost too will ultimately be paid by the consumer. Or the cost can be met by the consumer through taxes. Which method of paying we pick is a calculation, but there is no way of avoiding it. It is nothing to do with morality, it is simply the nature of complex societies where we all depend on each other.
BTW, society "as a whole" has no interests. The only interests to be found in any society are the interests of its individual members, which differ from person to person.
But the individual members cannot meet their own interests. I cannot be my own surgeon, I cannot build the roads I need. I need others, some things I need can only be provided collectively. Therefore I have to take the needs of others into account.

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Re: Is insurance a form of Socialism?

Post by Chili » October 14th, 2017, 3:51 pm

Democratically designed laws are a form of socialism. People may feel they have very good reasons to act outside of a law, but the socialized police force steps in so that the democratic decision regarding the behavior is enforced forcibly. This is true of traffic laws, the draft, theft, violence, etc. Whatever good reason you may feel that "Liberty!" enables you do, the law steps in in many cases to adjudicate. Some of those laws involve taking out insurance.

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