Suppose the national defense of the United States were relegated to the private sector. Instead of the publicly funded Army, Navy, Air Force, and Marines, the country would be defended by private militias funded mainly by insurance companies. In the event of foreign attack on U.S. soil, the militias would defend those citizens in the affected areas who'd paid defense insurance premiums through their places of work (or, if self-employed, as individuals).
The best-armed troops would defend the wealthiest and most hawkish segments of the population, who would have paid the highest premiums.
The less-wealthy and more dovish customers who'd chosen a less-generous policy would likewise be defended against attack, but they could expect to pay heavily out of pocket because their insurance would only cover costs for weapons and manpower above a fairly high deductible.
Noah's point is that privatized medicine is absurd. If we believe in privatized medicine, then why don't we believe in privatized defense?
The standard textbook economic answer is that while defense and health care are both good for people, only defense is a public good. When I consume health care services, essentially all of the benefit accrues to me, and unknown strangers get almost no benefit. If I were to buy a missile defense system for the United States, most of the beneficiaries would be unknown strangers. As a result, the textbook argument goes, private individuals have too little incentive to provide defense. They have plenty of incentive to obtain health care. That is why defense is a public good and health care is not.
So Noah is making an unpersuasive argument for socialized medicine. But is he making a good argument for privatizing defense? Anarcho-capitalists, feel free to chime in.