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Why Health Insurance Is Like Playing The Lottery


Elsie is a woman who works three jobs, one at a law firm organizing documents, one at Coors Field taking tickets, and one at Sam’s Club, where she gives out more samples than any of the other employees. She’s got a loud, Southern voice with the slow, soft cadence of a natural storyteller.

The last time she bought a lottery ticket was a month ago, when the Powerball reached a record high of $1.5 billion. She used to play once a week, but she was never up late enough to see the winning numbers on TV. So in the morning she would collect the paper from her porch and diligently ruffle through to see if she had won. She did win once—$40.

She almost won $200 another time, but her friend whom she had sent to purchase the ticket with her lucky numbers never actually did. “If I had won the million, I could have killed him and no judge would condemn me,” she says dryly. “We laughed about it, that’s all.”

Buying a ticket has become a ritual of hope, like a prayer. “It’s nice to imagine,” she says. She thinks of whom she would help if she got the money. She wouldn’t move, or change much about her own life. She plays because she likes to imagine giving it all away, all but a little for retirement. She would give some to her nieces and nephews, her co-workers, and she even said she would give some to me. Talking about it for a few minutes was enough to brighten her hopes, and she told me, as we were saying goodbye, “You know, I’m going to buy a ticket tomorrow.”

The Long History of the Public Lottery

Lotteries in early America were important tools in raising money to fund charters and sustain colonies. But in 1823 Washington DC sponsored a lottery to clean up trash and add trees along the city roads and parks. People supported the lottery like we might purchase lemonade from lemonade stands—as a sort of civic responsibility. This perception of the lottery is quite different from today’s, although some elements continue in fundraisers for churches and schools in the form of cakewalks and giveaways.

The money was collected and the winners selected, but the prizes were never paid.

The 1923 lottery was contracted out to a private lottery firm, which was responsible for selling the tickets, collecting the money, and paying out the prizes. The winning ticket was worth $100,000, or more than $2 million in today’s currency. The money was collected and the winners selected, but the prizes were never paid.

A man whose name seems to be lost from history took all the money and “absconded.” Yes, he “absconded.” That is the exact word everyone I can find (except Richard McGowan) uses to describe the theft. So we can assume they are all drawing from the same source. (This is perhaps an instance of scholarly insecurities, wherein plagiarism is not so bad as a limited vocabulary.)

We can only imagine where he absconded to. Perhaps he arrived in North Carolina with a new name, built himself a home amidst the old oaks, or made his way to Europe as a merchant, or helped to settle the West in an era characterized by the Monroe doctrine. Whatever the story, the money was gone, and the lottery was tarnished in the eyes of the public. Soon laws were erected forbidding lotteries in one state and then another.

More scandals came and went, until lotteries were shut down across the country. Of course, underground lotteries flourished during Prohibition until the Great Depression, when Congress approved bingo to help churches and charities raise money. Since then, lotteries have come back, and today, the government has gained almost exclusive rights to use them—partially to make money and partially to protect citizens from less honest lotteries.

Insurance Beats the Lottery

Insurance has followed a similar path, and shares more than a few similarities with the lottery. The two businesses hire from the same pool of actuaries and employ them to rig similar “games.” To survive, insurance requires the vast majority of people to lose most of the money they put into it. It’s a gamble that instead of asking people to imagine the possibility of a jackpot asks them to imagine something quite the opposite.

To survive, insurance requires the vast majority of people to lose most of the money they put into it.

That’s why insurance is much more successful than the lottery, causing U.S. citizens to spend about a trillion dollars a year on it instead of the relatively modest $70 billion of the lottery. In the end, people hate losing things a lot more than they like getting things.

The economic term that describes this phenomena is called “loss aversion,” which means people respond disproportionately to gaining $100 versus losing $100. If a phone company raises its monthly cost, more people leave than would join if they lowered rates instead. People just hate losing things once they have them.

This is also why people tend to overvalue their own possessions—a similar phenomenon titled “the endowment effect.” Ziv Carmon and Dan Ariely asked owners of NCAA Final Four tournament tickets to predict how much they could sell their tickets for. The predictions averaged 14 times higher than the average hypothetical buying price.

Insurance Uses a More Compelling Deception

So while people are much more vulnerable to the rhetoric of insurance than the lottery, both succeed by convincing us to believe in a fundamental deception. In the lottery’s case, people are willing to throw away a few dollars at a time so they can imagine the bliss of winning. Because the average lottery user’s day-to-day stresses and dissatisfactions are generally situated around money, they believe that obtaining a vast sum of money all at once would solve most of their problems. But this does not seem to be the case.

A lot of people are buying tickets just for the chance to imagine a happiness that does not seem to actually exist.

Several studies have explored the surprising dissatisfaction of lottery winners. One study compared lottery winners with people who became quadriplegic around the same time, and found that the lottery winners were no happier and took significantly less pleasure in simple beauties. A lot of people are buying tickets just for the chance to imagine a happiness that does not seem to actually exist.

The lottery doesn’t succeed because people aren’t good at calculating probabilities; they know they have almost no shot at winning. It succeeds because it convinces us to believe in an inaccurate equation: lack of money causes stress, stress drains happiness, therefore more money will mean more happiness.

A similar miscalculation takes place with health insurance. The average person assumes good health equals medical care, and medical care means access to care, which equals health insurance. Or, in the other direction, health insurance means access to care, which means good health because it mitigates the risk of disease and injury.

Health Care Doesn’t Improve Your Health that Much

But this also does not seem to be the case. People with health insurance are no more likely to be healthy than people without it. The vast majority of health is the result of personal lifestyle, genetics, and environment. Health-care services account for less (possibly much less) than 10 percent of your actual health.

The vast majority of health is the result of personal lifestyle, genetics, and environment.

This means access to health care has very little to do with what we think it does. The national debate about health care has focused around what Brent James calls “rescue care,” or the imperative we feel to save a life no matter the cost. This is the dramatic rush to the hospital and end-of-life care.

This sort of care has not actually increased life expectancy for several years. It is miraculous and wonderful, but it won’t make us live any longer or any more healthfully. But, as with the lottery, Americans continue pouring their money into a system that does not actually perform.

If, instead of focusing on a few rare cases, we spent our money improving our lifestyle—buy a better chair, change unhealthy habits, or (as some studies suggest) even meditating—our overall life expectancy would dramatically increase. But instead we continue to believe a false equation.

Health Insurance Follows the Lottery Trajectory

In 2014, U.S. lotteries raised more than $70 billion. This number is astounding because it suggests the average person spends $220 a year on the lottery. But that’s assuming the price is evenly distributed across all people. We know children aren’t participating, and in certain states the lottery is still prohibited. So for those who play, the average is much higher.

Several studies have also shown that poorer counties spend twice as much as wealthier counties. In North Carolina the poorest counties produced $400 per person per month. That’s $4,800 a year. If those same people invested that money in any number of ways, they could have more than a million dollars by the time they retired. That’s winning the lottery. So just imagine what could be done with the much larger amount of money that is now being pre-allocated (before it’s needed) to a host of medical services.

Over time, lotteries have had the same basic story line, and health insurance now fits right in:

The state legislates a monopoly for itself; establishes a state agency or public corporation to run the lottery (as opposed to licensing a private firm in return for a share of the profits); begins operations with a modest number of relatively simple games; and, due to constant pressure for additional revenues, progressively expands the lottery in size and complexity, particularly in the form of adding new games. (National Gambling Impact Study)

Insurance has followed a similar path, beginning as “friendly societies” and ending in nationalization—Obamacare. The nationalization is natural and even necessary. In England, early insurance agencies offered fire insurance, which meant homes were monetarily and physically protected because the insurance agency also ran the fire department.

But insurance companies drew criticism when they refused to put out the fires of homes whose owners had not previously purchased the insurance. This is an example of market failure. If the insurance company did put out the fire, then no one would buy the insurance.

Health Insurance Should Be for Catastrophes Only

The way to make sure all the fires are fought is to pay for a fire department through taxes. This way everyone pays into the insurance and every fire is extinguished. Today the same thing has happened with hospitals. A lot of people won’t pay for insurance if they can go to the emergency room and still get help, help that the hospital is required to give whether they’re paid for it or not. So we turn healthcare, like the fire station, into a “tax” that stops people from getting a free ride.

A good health insurance system would be like a good fire station. You call them when you need them, but most of the time you get your own cat out of the tree.

There is certainly some utility here, so insurance ought to exist and it probably ought to be governmentally run, but the chance of you ending up ahead is about as likely as your house catching fire. A good health insurance system would be like a good fire station. You call them when you need them, but most of the time you get your own cat out of the tree.

That means low premiums and high deductibles. But that’s probably not what will happen. If this progresses like any other lottery, we can expect it to just get bigger, advertising higher and higher “jackpots” (bigger, all-inclusive packages) because as the government gets involved in the business it will be under pressure to sell ever-increasing and ever more inclusive health-care packages. They’ll be tempted to insure more and more services, “to invent new games,” and “additional revenues.”

But if our goal is to encourage actual health improvements, we will need to devalue insurance, cut down traditional health-care spending, and create policies that turn people away from doctors and towards things that have a much larger impact on health. We have to find ways to, as Dr. David Blumenthal says, “Invest our health-care dollars in ways that will allow us to live longer while enjoying better health and greater productivity.”

The biggest lie health insurance tells us is that it’s a way of mitigating risks. Bad habits, low exercise, poor hygiene, genetics—those are your largest risks, and health care has proven to be very ineffective at dealing with those risks. If we want to encourage people to live longer, healthier, and happier lives, the best thing to do is convince them to eat well, sleep enough, and go to the gym rather than pumping their money into a system that will only produce yet another ineffective doctor visit.

But we want to believe doctors can take care of us. It’s sure nice to imagine, so we commit to buying another ticket tomorrow.