The Myth of the Rational Voter, Posner Edition

Posner's also an elitist. Not to knock it--I'm an elitist, too. But Posner faces an interesting tension: he accepts that voters are ignorant, and at the same time he argues that judges should defer to regulators, the executive branch, and other governmental experts.

The rub is this: if voters are ignorant, what force is keeping regulators, et al, working in the interest of the public good? If no such force exists, why defer?

In this case Richard Posner mistakes insurance preferences for economic illiteracy. One valid model of insurance is that it should spread the costs of uncommon but expensive bad events across as wide a population as possible. In this insurance model, risk factors among individual policy holders are not used to deny coverage or increase premiums.

That model of insurance is used by the federal government (the disability insurance portion of Social Security). It may not be the best insurance model from an economic standpoint, but that does not mean that persons who prefer it are showing economic illiteracy.

My preferred model for health insurance is that premiums should be increased when persons have modifiable risk factors (such as tobacco use, sedentary lifestyle, or untreated hypertension) but not for unmodifiable risks (such as family history of heart disease or genetic propensity for tumors). This hybrid model allows persons with non-correctable risk factors to get affordable coverage while providing an economic incentive to persons with correctable risk factors.

Dr. T, don't speak rationally. It's better to dismiss people's clear preference as "illiteracy". They are just too stupid to know how things should be. If only they had IQs high enough so we can educate them into being good libertarians! ;-)

You could call it illiteracy in that they don't know what the word insurance means, but it's just as likely they want the insurance companies to do more than just insurance.
What people are asking for is a combination of two things:
Insurance so that a normal person is less likely to have his life destroyed by unexpected health problems.
Redistribution from the healthy to the unhealthy.
And it seems reasonable that these two functions should be combined into the role of the insurance company.
That is probably a bad idea, for the reasons Posner gives, but it's no different in principle from, say, requiring shops to provide facilities for the disabled, which is also probably a bad idea, but is the status quo.

Any belief in a free lunch displays economic illiteracy, and a free lunch is precisely what that 80% of Americans are advocating.

Part of the problem with the current system of insurance is that everyone wants to get more out of it that they put in. With car insurance, it seems that people are somewhat more rational in accepting that they need to pay some fee to cover unexpected expenses, but they see health care as an entitlement. Insurance for cars and houses are based on factors that an individual can control to some degree, so I think people don't have a problem with being assessed a different rate based on these factors. Many risk factors for health insurance are non-controllable, so people understandably want costs spread over a larger population so the non-controllable aspect of health problems average out.

I would agree with Dr. T's preferred model and I expect the population as a group would as well, however insurance would also need to move to the sort of model we currently have for home and auto. This would mean that you can purchase a certain level of coverage, but cannot expect to be covered for all expenses. I think this will be a hard sell, but will become increasingly important as our population ages to contain costs.

Posner makes this statement after already having provided most of the counterargument. He acknowledges, two paragraphs earlier, that the requirement would be a way to provide social insurance. He then argues that it is not an efficient way to finance social insurance. But then he doesn’t give poll respondents credit for recognizing that the efficient method of finance may be politically infeasible. Just possibly, the problem is not that Americans are economically illiterate but that Posner himself is politically unrealistic.