Insurance as a Prisoners' Dilemma
By Bryan Caplan
I’ve got a little toenail fungus.
Now that you’re done cringing in disgust, let’s get to the economics. My HMO doesn’t cover treatment, because the problem is “merely cosmetic.” Until recently, though, I didn’t care, because they’re weren’t any good treatments for nail fungus. There’s a pill that works, but also occasionally causes liver damage. No thanks.
Then I learned about a new laser treatment that’s supposed to be both safe and effective. Now I wish my HMO covered it. But as an economist in good standing, I’m happy to go out-of-pocket as long as MB>MC. So I called up the clinic for more information. When the secretary informed me that, “Insurance doesn’t cover this treatment,” I was positively delighted.
Why, you ask? It’s not envy – I don’t mind if other people have better insurance than I do. The reason for my delight: As soon as she said that no insurance companies covered this treatment, I knew it would be reasonably priced!
The moral: Health insurance is, in large part, a Prisoners’ Dilemma. If everyone but you has it, medicine will seem prohibitively expensive. Demand is high, comparison shopping is unheard of, and no one cares but you. When nobody has insurance, though, you probably don’t need it. Lower demand and more comparison shopping make treatment affordable. Which makes me wonder: Where would you rather live – a country where everyone has health insurance, or a country where no one does?