Insurance is definitionally worse at covering routine events compared to direct purchases.

From the 1970s until the recession of 2008–2009, medical expenses in the U.S. rose at a rate significantly faster than inflation. This is commonly believed to be the result of market imperfections. However, federal and state governments have long suppressed the functioning of the market system in the medical industry. Third-party payment, with its moral hazard, has increased demand and thereby driven up prices. Medical suppliers that work with relatively low levels of third-party payment have seen significantly lower price increases over time. The Patient Protection and Affordable Care Act (PPACA) has increased the usage of high-deductible insurance, but has other features that work against cost containment. Increasing Demand through Third-Party Payment In order to function properly, insurance can only cover insurable risks. For a risk to meet this qualification, it must share three common characteristics: the chance of a loss is small; the magnitude of the loss is financially devastating to an individual; and when the risk is spread over a large group of people, premiums are affordable. For example, getting hit by a car is an insurable risk because the chance of such an occurrence is small; the required medical services are too expensive for many individuals to afford; and when the risk is spread over a large group, the premiums are affordable. Yet, many of the services covered by health insurance do not fit this definition, and instead involve predictable expenses or minor care.1,2 In fact, the Patient Protection and Affordable Care Act (PPACA) mandates coverage of immunizations, alcohol misuse screening and counseling, blood pressure screening, depression screening, diet counseling, obesity screening and counseling, tobacco use screening, anemia screening, breastfeeding comprehensive support and counseling, folic acid supplements, and iron supplements, among other “preventive” services. Some argue that medical care needs to be treated differently from other market transactions because proper health is essential to life. Yet food is essential to life, and grocery insurance does not exist—nor should it. If this insurance did exist, consumers would become less sensitive to price increases. Grocery stores could then raise the prices of their products, and grocery insurance premiums would increase in order to account for the change in prices. That a good or service is “necessary” does not make it insurable. Unlike health insurance, other forms of insurance have not typically stepped outside of their proper role. For example, automobile insurance does not cover predictable or inexpensive services such as emissions testing or oil changes. The reason health insurance has been able to expand beyond its original market function is the extensive intervention of government.