That isn't the point of insurance in its original sense. Insurance, originally, was about being able to reliably get the expected value out of something whose outcome would vary. Take a ship, for instance: ten ships go to the East Indies, three return laden with spice, seven sink. Expected value: some spice. So, you pool homogenous risks and investors can expect a more reliable income, less a fee for the broker and all the rest.

I would argue the word has been bent and beaten far out of its original shape into something close to what you're talking about, especially in health. It's not insurance as much as assurance. You don't pay in early in life to get the expected value later in life. That would be insurance. You fight to try and get more than you deserve when you're above the life expectancy, if you're good at paperwork. If you're bad at paperwork or a smoker, you're the one whose early death frees the medical resources and insurance money needed to pay for the one who's good at paperwork, less a fee for the broker and all the rest.

In this second meaning of "insurance" you're right, the point is totally defeated because nobody will want to "insure" a sickly old man's health just as nobody in their right mind will write fire insurance for a cigarette.

Insurance is simply the act of diversifying risk and normalizing returns. When you are insured, you are consequently assured (confident) that you will not receive some huge, unexpected cost but that you will rather pay out in manageable portions over time.

It could be across a pool of investors, as you describe in the spice-trading example. Nobody wants to self-insure because of the chance of a huge catastrophe taking out their ship and netting them a huge loss and likely a lifetime of debt.

It could be across a pool of investors, as I describe in the health-insurance example. Nobody wants to self-insure because of the chance of a huge catastrophe putting them in the ER and netting them a huge loss and likely a lifetime of debt.

The reason we leave it to big organizations currently is because they have the resources (data, underwriters) to accurately asses and price risk. They charge a fee to do this. They are allowed a certain amount of extortionate leeway due to government regulation mandating certain minimum amounts of insurance, which you allude to in arguing with companies for reduced rates.

Things we could do to make the system better:

1) Reduce barriers of entry for doctors

2) Stop prescribing unnecessary treatments/prescriptions

3) Better education regarding health choices

4) More taxes/tradeable permit system for companies that pollute bodies or the environment (McDonalds, ADM, Dow Chemical, Bayer)

Fwiw: I paid accident claims for over five years. Most claims fell into one of two categories: "accident waiting to happen" or people trying to get coverage for things like the chiropractic care they were going to get three times a week anyway. Only a tiny portion of claims really struck me as shit happens/man, it sucks to be you.

If you really want low health bills:

Do all that boring stuff you constantly read about, like brush, floss, eat right, exercise, and only drink in moderation. Do not ever get rip roaring drunk. Especially do not drive or engage in other dangerous activities while drunk or high. Don't sleep around casually. Don't ride a motor cycle. If you want to go hiking in the mountains, take the appropriate precautions and do not drink or do drugs.

A lot of claims will not be covered anyway if you were drinking, taking drugs or engaging in risky behavior (parachuting, mountain climbing). And keep in mind that insurance only protects against financial loss, and only to a limited degree. If you permanently maim yourself doing stupid crap, you will not only be stuck with high medical bills and reduced odds of making a good income thereafter, you are also permanently maimed, duh. Living with chronic pain and other issues of that ilk still sucks majorly, even if you win the lottery and are set for life financially.

/boring old fogey

If I could offer you only one tip for the future, sunscreen would be it. The long-term benefits of sunscreen have been proved by scientists.

Whereas the rest of my advice has no basis more reliable than my own, meandering experience. I will dispense this advice on HN.

All around good advice, if your goal is to survive as long as possible. You miss out on some amount of fun, though. I don't mean that in any kind of "way", just that if that is your goal, this is some good advice.

What fun am I missing out on?

I have been rip roaring drunk, once or twice. It wasn't any fun and then I was sick afterwards.

I have hiked up mountains, in spite of a fear of heights. I did it sober and took appropriate precautions.

I am not suggesting you not have a life. If you want to drink, you can. You just need to have a designated driver or call a cab. If you want sex, you can have that. Just not with random ass strangers whose histories are total unknowns.

I enjoy my life. And I have very few regrets. I think "fun" that leads to regrets = you are doing it wrong.

But I was like that before I paid accident claims. Paying them just made me more confident that I am right.

Edit: I am genuinely curious what fun you think I am missing out on, though perhaps that is not clear. I really wonder what you think I am not doing that somehow makes my life less fun. Because I sincerely do not see it.

Well, this is what I wanted to avoid. I didn't mean it in any particular "way", especially an accusatory one. I've just done the opposite, basically living like there is no tomorrow. It was a lot of fun, but very dangerous, and it wouldn't be very good of me to advise anyone else to do it. But it was a lot of fun, a lot of the time. And regrets are easy to get over -- for me -- if I go into a situation telling myself "no regrets".

Thanks for replying.

I imagine if you and I had a good looooong talk, our positions would not appear so far apart. However, this is not the place for that.

Take care.

I think you're right. You too.

And what happens if one of your 5 friends is diagnosed with an incurable but expensively treatable illness? Do you kick them out? Do you increase the premiums? Do you invite more people in to the pool?

There are many ways to design plans around this nowadays. With Obamacare making health insurance guaranteed issue (they have to cover you), you really would just try to foot the bill for at most 12 months before you could go on a marketplace insurance plan. While it might be gaming the system, it's now law.

Nowadays, health insurance is really "assurance" sprinkled in with a doctor subscription (as daniel-cussen mentioned). With that in mind, a hypothetical plan design would collect premiums that bundle reserves, a concierge medicine program, like HealthTap, and critical illness insurance, cancer, and/or accident insurance. These insurances only cover specific incidents for the immediate term. Once someone triggers one of these events, you could push them onto the exchange where the larger risk pool would then cover it on an ongoing basis.

Whether or not that would be ethical is up to you...

From an economical standpoint, depending on your area's availability (read urban centers), you could likely put together this entire package for a collective and pay the ACA tax for less than an ACA approved plan.

It depends on how you design the contract.

You might have included a clause where you can release a member from the pool for a high one-time cost from each of the other members.

At the end of the day, you would undoubtedly be liable to pay in one form or another for a portion of those treatments, unless the friend felt bad and voluntarily left the insurance group.

Insurance among friends would be weird, mixing emotional and purely mathematical calculations.

A single trip to the ER with a serious, but non-life threatening, injury could easily cost more than any 2 members of your group make in an entire year.

So its a crap shoot - your small group is very likely to be cheaper, 99% of the time. The only important thing is, can your group actually support a real medical emergency at full cost? That's the only reason to join the group after all.

When participating in a larger insurance group, these same costs are born solely by insurance premiums. But the costs are not the same - big insurance companies have negotiated lower prices across the board. Your group cannot.

I see p2p insurance as a total loss, because in time of need they cannot possibly pay.

From what I'm reading, it sounds like the p2p insurance is intended to cover a portion of the deductible. This would allow the members of the pool to choose higher deductible plans than they would otherwise be comfortable with. If someone develops a chronic illness which is expected to always eat up the pool they would probably be booted after the first year.

Whoa - isn't that illegal now? Preexisting condition can't prevent an insurance group from admitting a new member? Or is that restricted somehow?

I have no idea what the legality of it would be, but it probably wouldn't make sense to accept or keep someone with an expensive-to-treat condition in small pool like that because there may not be enough other members to absorb the cost.

The whole point is that everybody has coverage under a high deductible standard insurance plan (which will be significantly cheaper than a low deductible plan), and then the group shares the risk of the deductibles.

Best case, everybody pays less for insurance (including what they pay into the p2p pool). Worst case, someone gets sick and busts the pool (and gets kicked out if it's chronic), but everybody still probably paid less overall. Not sure how well this works if the person who got booted can't get their deductible reduced.

I think health insurance is weird in a number of ways for this. It'd probably be great for e.g. homeowners insurance.

Wow, that's insane! I hope you guys (I'm assuming USA) fix this system soon. In countries with a developed health care system, this sort of thing does not happen.

This seems like a really good idea.

Though the set of ~5 seems to expose you to a lot of risk still. What if the size of the set were increased such that the risk was 1 in a million rather than 1 in five.

What if the set of those insured was almost the size of a population?

Not only would you have spread the risk greatly and reduced cost, but you'd probably benefit from collective bargaining power to be able to reduce the costs that you were exposed to.

Sounds like a good idea all round.

In the limit, I think you might reach the Affordable Care Act: a single risk pool for each region, and price variations only on age and smoking status.