Insurance Market Failures
Many types of insurance cannot be offered privately (or voluntarily) because of a number of market failures or because they work poorly when they are offered. Unemployment insurance, old-age pensions, medical insurance, crop insurance, flood and other disaster insurance, etc. Then government should play a part. Some types of insurance need to be mandatory because otherwise compensation for injury or damage will frequently be unpaid.
- When All Else Fails: Government as the Ultimate Risk Manager (book)
- "In policies as diverse as limited liability, deposit insurance, Social Security, and federal disaster relief, American lawmakers have managed a wide array of private-sector risks, transforming both the government and countless private actors into insurers of last resort... Well suited to a society suspicious of government activism, public risk management has emerged as a critical form of government intervention in the United States."
Large-scale government social-insurance programs are the best way we have found to achieve major and important public purposes. There has never been a private marketplace offering unemployment insurance. The unemployment insurance program works quite well: It gets money to people who have previously paid for it when they need it. Edward Filene’s welfare-capitalist notion that defined-benefit pensions offered by employers and more recent hopes that defined-contribution 401(k)s could provide old-age pensions more efficiently and effectively than Social Security have not covered themselves with glory over the past generation: Too many defined-benefit private pensions have not been paid out in full as promised, and too much wealth invested in 401(k)s has been skimmed off to enrich the princes of Wall Street. In health care, despite extraordinary administrative inefficiencies and little ability to improve quality and cost-effectiveness, the private insurance marketplace works—unless you are old, sick (and happen to be out of a job), or poor. Yet it is the old, the sick, and the poor who need health insurance most—hence, Medicare and Medicaid.
Brad DeLong, "Shrugging off Atlas"