Define insurance

At least in most dictionaries, insurance is something that risk-averse people purchase in case of getting a "bad state of the world". For example, this could include fire insurance in the the event your house burns down. Auto liability insurance is required in most states in the event you cause an accident with your car. It won't cover your car, but it will cover the damages sustained by the other car. If you hit a Lexus, the cost of those damages can be high and would be hard for many people to pay out of pocket by themselves. You can purchase insurance to cover your car as well, but it will be more expensive. In my case, with an old 1998 Toyota Corolla, the insurance on my car would cost more than the value of the car, so I choose only to protect myself from the liability of smashing into a Lexus.

Health insurance should be no different. I am risk averse to such high cost events like cancer, trauma, and freakishly weird birth disorders that present at birth. Therefore, I would like to purchase insurance against such events. However, I anticipate a yearly visit to the gyn doc. If I had kids, I would anticipate at least 3 visits a year (assuming a healthy child--obviously a less than healthy child will need more), with at least one of those visits being the ER. All together, that probably puts my yearly expected costs around $2,000-$5,000. Because these costs are highly expected and low cost, it would be both silly and expensive to insure against them. That is akin to insuring against having to buy groceries every week. Rather than simply budgeting for the expense, I pay an insurer to pay the doc. If I have the insurer cover it, I add an unnecessary transaction to the cost.

Bloomberg Business had an article discussing the rising costs of care, which are in turn reflected in the rising premiums. They also included the average out of pocket spending by individuals with high deductible plans at $1700, which is a decent reflection of the costs you would anticipate if you budgeted for what are low cost and highly expected events. If people have insurance against these low cost, high expectation events, they will exhibit something economists call moral hazard. IE, they will probably go see their doctor more often than they need to because they aren't footing the entire bill every time they go in. This raises costs (and therefore premiums) for everyone in the pool. This is just one of the reasons individuals should not have insurance for low cost and high expectation events.