I see this sort of misconception flying around. "Well the health insurance takes my money, makes a profit, and pays me only if I need it, otherwise I 'lose' money. Clearly, I would be better off saving my money." This sort of reasoning completely misses the point of insurance.
Suppose you plan to pay
$2,400 a year for either insurance or as savings in an account, and suppose you have a
10% chance of needing a
$24,000 treatment, per year. It would seem reasonable to think that, in the long run, your savings plan will cover your costs, without losing money to the profit/overhead of an insurance company. That's wrong.
This would be the case, if:
- you have the ability to go into an unbounded debt
- you "play the game" forever
Only then, does the expected value of the savings match the expected cost of the treatments. But these aren't criteria you could satisfy, which means that you cannot effectively replace insurance with savings accounts.
For one, you could get ill in your first year, and only have
$2,400 out of the
$24,000 you need. You already lost. You need a clean record for the first 10 years, or you'll need to withdraw loans or file for bankruptcy, both of which are incredibly common for those uninsured.
Suppose you make it through your first 10 years, and you're in the clear. You've got enough to cover you, right? Well what happens if you get sick on the 11th year, and again on the 12th year? Once again, you're screwed.
Insurance exists to mitigate the damage of probabilistic but unpredictable events on its beneficiaries. It addresses the first issue, by pooling premiums into a pool which can be used to insulate people from "going negative." It is technically possible for enough beneficiaries to all get sick at once so as to deplete the insurance company's pool, but they calculate the capital they need to hold to make this astronomically unlikely. You don't have the ability to do this, as an individual.
Furthermore, even everyone could somehow spontaneously accumulate enough money to cover a health disaster, there are economic reasons why you wouldn't want your population to be doing so. It's a tragedy of the commons. It's beneficial for every individual to do for themselves, but detrimental on a societal level. The kinds of holdings you need for medical funds have to be reliable, and liquid enough that you can access them at a literal moment's notice. So this isn't some long-term, efficient investment we're talking about here. Liquidity and reliability come at a cost of RoI.
Economies benefit from the circulation, not hoarding, of wealth. In my opinion, is does not seem like a viable idea to replace insurance with individual savings accounts.