Why So Many Healthcare Risks are Uninsurable and Why It Matters

As the US begins a great national debate over healthcare policy, investors in affected industries will need to understand some basic principles of healthcare economics. This post focuses on one such principle-that of insurability. I hope to deal with others in future posts.

A risk must meet certain well-known conditions in order to be economically insurable. Healthcare risks meet some of these conditions. For example, large numbers of people are similarly exposed, and the magnitude and probability of risk are usually calculable. However, healthcare risks, at least for many people, fail to meet two other key conditions of insurability: They are not always fortuitous , and actuarially fair premiums are not always affordable.

The problems of fortuity and affordability arise from an inconvenient but inescapable fact of healthcare economics-the highly skewed distribution of medical expenses. >>>

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