Tuesday, February 03, 2009

The future of health insurance

Health insurance is dead.

In business, they say that uncertainty is toxic. Unlike risk, which can be divided, hedged against, and otherwise dealt with, uncertainty is an unknown unknown, so there is no way to prepare for it. Health insurance used to straddle the line between risk and uncertainty. The risk of any particular ailment was predictable--on a societal scale. The risk of an individual getting it was uncertain. Health insurance simply used group insurance to convert uncertainty into risk, and then prepare against it.

As medical science advances, however, uncertainty on an individual level declines, and so the standard health insurance model becomes less and less useful. However, it changes the insurance model to an already extant paradigm. Life insurance insures against an extremely predictable event--but there is uncertainty as to its timing. Health insurance would thus have to follow the life insurance model--it knows what will happen to whom, but not necessarily when.

That will change as well. The advances in medical science will decrease that uncertainty as well. Eventually, health care will have to be funded like another large, predictable, and precisely timed event, like college. Eventually, instead of starting college funds for children when they're born, we'll start health funds. It is the way of the future.

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