To say a word more on today's Senate Finance Hearing, when you ask a question like "do insurance markets work," you have to be careful to ask, "for whom?" If the "whom" is sick people, then they work for some people who have employer-sponsored health insurance and get sick, they don't work for some people who are sick but whose job doesn't offer health insurance, and they don't work for people who were once sick and are now better but can't quite convince insurance carriers that they'll never, under any circumstances, get sick again. On the other hand, if the "whom" is insurance companies, then the market often works quite well. After all, the point of an insurance company is not to insure people, but to make a profit. And most of them are doing that. Indeed, health insurance profits have increased 170% over the past five years (pdf). That is, by any definition, "working."
People often find this confusing. The purpose of insurance is to spread risk. The purpose of health insurance -- which is different than fire insurance -- is to insulate people from medical costs, both expected and unexpected. The purpose of a private company is to make a profit. If a private health insurance company is not spreading risk very effectively, and not insulating all potential customers from health costs, but they are making a profit, then the market is working for them. The prime directive of their company is being fulfilled. Complaining that they are not also working towards the public good is like complaining that I'm not building jet engines: It might be nice if I built jet engines, but it's not actually my job. happily, insurance companies are not, at least in theory, the ultimate authority on the purpose and structure of the insurance market If we decide we want that market to be relatively better at protecting people than it is in generating profits for insurers who are good at not protecting people, then we can lay down some rules to that effect. If the insurers decide they can't survive in that market, then they can fold up and do something else and a government entity can assume their role. If they decide they can compete on more broadly beneficial grounds, like price and quality, then most will welcome their involvement. But fundamentally, it should not be up to them. It should be up to us.
People often find this confusing. The purpose of insurance is to spread risk. The purpose of health insurance -- which is different than fire insurance -- is to insulate people from medical costs, both expected and unexpected. The purpose of a private company is to make a profit. If a private health insurance company is not spreading risk very effectively, and not insulating all potential customers from health costs, but they are making a profit, then the market is working for them. The prime directive of their company is being fulfilled. Complaining that they are not also working towards the public good is like complaining that I'm not building jet engines: It might be nice if I built jet engines, but it's not actually my job. happily, insurance companies are not, at least in theory, the ultimate authority on the purpose and structure of the insurance market If we decide we want that market to be relatively better at protecting people than it is in generating profits for insurers who are good at not protecting people, then we can lay down some rules to that effect. If the insurers decide they can't survive in that market, then they can fold up and do something else and a government entity can assume their role. If they decide they can compete on more broadly beneficial grounds, like price and quality, then most will welcome their involvement. But fundamentally, it should not be up to them. It should be up to us. 
