Health of the nation: a philosophical approach to health insurance and the welfare state

In this blog, Rob introduces the ideas of one of his favourite philosophers, Joseph Heath, and shows how they can be applied to contemporary debates about health care and the welfare state.

Introduction: Joseph Heath, market failures and the welfare state

Joseph Heath is a Canadian philosopher who has written about a variety of philosophical topics. One of his major contributions is to apply economic ideas to moral and political philosophy. He has argued that the concept of market failure should be central to how businesses and governments make decisions.

Specifically, Heath argues that, to act ethically, businesses should refrain from taking advantage of market failures, while governments should focus on resolving them. This might sound anodyne, especially to economists, but it is actually an original and distinct philosophical view.

Market failures come in many shapes and sizes. I have identified some of the main ones below. (For an accessible introduction, I would recommend this free online course).

They have in common that they prevent buyers and sellers from carrying out trades which they would otherwise voluntarily make. In economic language, they prevent Pareto improvements from taking place – trades where at least one individual is made better off without making another worse off – and result in inefficient outcomes.

Type of Market FailureDescriptionExampleSolution
ExternalityWhen the individual reaping the benefits from an economic activity does not pay the full costs associated with itA factory polluting the local environment but not paying to clean it upTax the individual or business so they do pay the full costs for their activity
Collective Action Problem
When a group of individuals would collectively be better-off if they cooperated, but they fail to do so because they reason that they will be individually better-off if they defect 
Depletion of shared natural resourcesPrivatise the shared resource or regulate its use
MonopolyWhen are too few sellers in a market or inadequate competition between them, enabling them to price gougeUtilities like electricity, sewage, or water Regulate prices, break up large companies into smaller ones (competition policy), or take them into public ownership
Asymmetric InformationWhen one party in a trade has more information about a good or service than another, enabling them to take advantage of the otherMarket in second hand goodsThird-party accreditation of product quality

Heath takes these concepts and applies them to business ethics and political philosophy.

In business ethics, he disagrees with the two most popular views: that the primary responsibility of corporations is to maximise profits for their shareholders or, alternatively, to balance the interests of their stakeholders. Instead, he argues that the chief responsibility of business is to ensure there is an efficient allocation and use of resources in society1. They should do this by refraining from exploiting market failures. For example, a business should not pollute the local environment without sufficiently compensating those who will be affected (not necessarily something that should be taken for granted!).

1Heath’s “market failures approach” to business ethics builds on the empirical claim that capitalism and free markets have, overall, served us well for the last two hundred years and are demonstrably the most effective way of allocating resources in society to their best (most efficient) use.

In political philosophy, Heath argues that the strongest normative justification for the welfare state – the public provision of health care, pensions, unemployment benefits and so on – is that it solves market failures and provides public goods, which are valuable for everyone in society but would be underprovided if left to market forces alone.

This is distinct from rival views which claim the normative basis for the welfare state is either that it ensures everyone in society’s basic needs are met or, alternatively, that it increases fairness by redistributing wealth and income from rich to poor. To be clear, Heath is not saying these are not legitimate goals, just that they are not the strongest justifications.

I am not going to rehearse Heath’s arguments in this blog (but I have noted his key essays at the bottom). Instead, I aim to show their power and relevance by applying them to a live debate: the public provision of health care.

Specifically, I will respond to the case made by Alex Voorhoeve (another moral and political philosopher with economic inclinations) that it is permissible for a government to mandate individual citizens to purchase more comprehensive health insurance than they themselves want.

Inspired by Heath, I will attempt to show that the two arguments Voorhoeve makes for this position are unconvincing. I will conclude by suggesting that concerns that motivate Voorhoeve’s argument are not as troubling as they initially appear. We can support the public provision of health insurance – and be confident it can function effectively – without being overly worried about some citizens opting out.

What does public provision of health care mean?

It will be useful to clarify what I mean by public provision of health care before getting into the debate. The meaning of public here is probably obvious: the government rather than the market.

The meaning of provision, however, is more subtle2. It refers both to the demand and the supply side of health care, though these are distinct. The demand side essentially means the funding. The options are a single payer public system (where everyone pays the same for insurance), a fully competitive market (where individuals take out private insurance policies), or something in between.

2Or, at least, its meaning is lost on certain commentators on both sides of the political spectrum, who alternatively invoke the privatisation or socialisation of the health system without being clear on what they believe is being either privatised or socialised.

The supply side means the health care professionals (along with the equipment and facilities they use) who deliver health care services. The options are salaried employees of the state, private practitioners and companies, or something in between.

The demand and the supply side can be joined in different combinations. For example, funding of the health system could be via a single payer public system but care itself could be delivered by private practitioners and companies who are contracted by the government.

In this blog, I am focusing the question of how the demand rather than the supply side of the health system should operate. Specifically, this relates to the extent to which governments should be involved in the design and provision of health insurance.

May a government mandate more comprehensive health insurance than (some) citizens want for themselves?

Voorhoeve frames his argument in the context of the Affordable Care Act in the US. This landmark act – more commonly known as Obamacare – provided affordable health insurance for millions of Americans who were not previously covered.

It was also extremely controversial and much maligned. One particular criticism was that the Act increased the insurance premiums for some US citizens against their will, because their coverage was judged to be insufficiently comprehensive – not providing them with enough protection against the risk of ill health3.

3As a more recent example, we could consider the UK government’s increase of the rate of National Insurance in 2023 to fund adult social care. It is possible some UK citizens who will be required to pay the increased amount would prefer not to do so, even if this meant running the risk that they will not be able to access social care that they need later in life without paying very high costs.

Voorhoeve illustrates the moral quandary with the words of one US Representative:

“What do you say to Mark and Lucinda in my district who had a plan, they liked it, it was affordable, but it is being terminated [because it is not sufficiently comprehensive to meet the requirements of the Affordable Care Act]? It was what they wanted and I will remind you: some people like to drive a Ford, not a Ferrari. Some people like to drink out of a Red Solo cup, not out of crystal. You are taking away their choice.”
Representative Marsha Blackburn, 2013

This feature of the Act seems objectionable because it is an intrusion into an individual’s choice or, in other words, is paternalistic4. It requires an individual to buy more protection against risk than they may themselves be willing to.

4There is a presumption in political philosophy that paternalism is bad and that it is only permissible for governments to behave in paternalistic ways in extreme cases. For more on arguments for and against paternalism, see this free article.

Voorhoeve attempts to show why this feature is justifiable despite its seemingly paternalistic nature. He provides two arguments for this position: (a) the adverse selection argument; and (b) the social egalitarian argument.

(a) The adverse selection argument

Voorhoeve first argues that a mandatory minimum package of health insurance is justified because otherwise the health insurance market could collapse due to an adverse selection mechanism.

Adverse selection is a type of market failure that results from asymmetrical information. Consider a competitive insurance market, where an individual wants to protect themselves against the risk of some significant harm. They therefore pay a sum of money to an insurer, who promises to pay out should this harm befall them.

The insurer will want to know the probability that this harm will occur and, in the event that it does, the amount that they will need to pay out. This will enable them to offer as good a deal as possible to the individual (while still making a profit) and win their business in a competitive market.

This means that the insurer is incentivised to find out as much relevant information as they can about the individual, so they (or, more likely, the actuary working on their behalf) can calculate the risk of harm as precisely as possible. If the individual does not face a significant risk of harm, this does not necessarily pose a problem to them. They can share information about themselves freely with the insurer, without being too concerned about having to pay high insurance premiums as a result.

If they do have a specific risk factor, however, which leads them to face a risk of harm that is statistically higher than the average, this may not be the case. They could want to conceal their risk factor from the insurer so that they do not have to pay high premiums. (Importantly, we are assuming that an individual is likely to have much better information about their own health – and hence their risk of harm – than a third party).

The scene is now set for an adverse selection mechanism to emerge. Imagine a stylised insurance market where two people, Bob and Jill, want to insure themselves against the risk of ill health. The most likely scenario is that one of them will become very ill, in which case their care will cost $10,000, while one will not be ill at all, in which case their care will not cost anything.

As a result, the insurer charges Bob and Jill $5,000 each in premiums, because this is the average they will have to pay out for the two of them. Significantly, however, Bob is already an extremely unhealthy person, while Jill is extremely healthy. The insurer, on the other hand, has no idea about this. While Bob may be very happy to pay the $5,000 premium, Jill is likely to be far less eager. She therefore decides to take her business elsewhere, leaving Bob to pay the elevated $10,000 costs alone.

This is the essence of adverse selection. If we were to add more people to the insurance market, the same mechanism would lead the (relatively) healthy to drop out of market given the high costs they face, while the (relatively) unhealthy face steadily increasing premiums. A death spiral sets in and the insurance market collapses.

To avoid this situation, Voorhoeve argues, there is a strong case for a government to mandate all citizens to buy health insurance that will provide them with a standard of care that is above a certain threshold. In effect, this prevents the healthy from dropping out of market and a death spiral from setting in. Importantly, this mandate can be justified to the healthy as in their own interests. Everyone – even the healthiest – face some risk of serious ill health at some point and therefore would not want all health insurance markets to collapse.

(b) The social egalitarian argument

Voorhoeve’s second argument is that, without a required minimum level of health insurance, social egalitarian public goods, which everyone has reason to value, would be underprovided.

Social egalitarian public goods can be roughly defined as an enabler of trust: the glue that holds the fabric of society together. They are social egalitarian because they allow everyone, regardless of their rank or station, to engage with each other on a basis of equality. This is an important pre-condition for a liberal society.

They are public goods because, in keeping with classic public goods like security or clean air, they are non-excludable and non-rivalrous. This means that for anyone to be able to consume them, everyone must be able to consume them, and their consumption by one person does not affect their accessibility to others.

Public goods are liable to be underprovided by market forces alone. Since everyone can access them without restriction, individuals will be tempted not to contribute to their provision and free ride on the contributions of others. (In other words, collective action problems often emerge around the provision of public goods).

Voorhoeve lays out four distinct social egalitarian public goods related to health, which I have summarised in the table below.

Social egalitarian public goodDescription
Absence of domination and exploitation in private lifeThe less well-off are not highly dependent for their wellbeing on the powerful
Absence of domination in political lifeThe interests of the less well-off are effectively represented
Social bases of self-respectEveryone is able to participate in public life with dignity
Attitudes required for social cooperationEveryone is willing to work with others for mutual benefit, enter reasoned discussions and abide by fair arrangements

His claim is that, if adequate health care is not guaranteed to everyone in society, these social egalitarian public goods will be underprovided. This generates a prudential reason (a reason motivated purely by self-interest) as to why a healthy person should desire other people to be healthy too. On a societal level, this benefits the healthy, enabling them to live in a trusting, well-functioning community.

Importantly, if each healthy individual were left to choose whether to contribute extra resources to provide these social egalitarian public goods, they may decide not to do so. They would be tempted to free ride on the contributions of others, leading to a breakdown of trust and a collective failure to produce the social egalitarian public goods.

In turn, this justifies an external enforcement agency – such as a government – obliging everyone to contribute a minimum amount to the collective scheme. One way of achieving this would be through a mandatory minimum level of health insurance.

Why I think Voorhoeve’s arguments are unpersuasive

I have doubts about the success of both of Voorhoeve’s arguments. First, the adverse selection mechanism is a theoretical risk to the effective functioning of the health insurance market, but in practice less of a concern. Second, even if we accept Voorhoeve’s claim that adequate health care for everyone in society is necessary to the provision of social egalitarian public goods, it is not clear that the best way to provide these is through health insurance. Ideas from Heath provide the basis for both responses.

Adverse selection is more a theoretical than a practical problem

Insurance is a way for an individual to reduce the risks of harm they face in an uncertain world. I do not purchase insurance as an altruistic act. I do it because, by pooling the risk that I face with others, I make it more statistically stable and therefore predictable. This helps me to calculate how much I should spend on protecting myself against risk relative to other things.

Nevertheless, insurance does not have to be perfect, just good enough that it is worth me buying it rather than bearing the risk on my own. Heath presents this distinction in a more technical way in a paper about the insurance industry. Drawing on game theory, he distinguishes two types of equilibrium that could be reached in a cooperative arrangement such as an insurance market:

  1. The feasible set: “the set of possible cooperative arrangements that offer individuals expected payoffs higher than those that could be obtained through the non-cooperative strategy of self-insurance”
  2. The core of the game: “an arrangement from which no individual or coalition of individuals has an incentive to defect”

The feasible set compares a sufficiently good outcome to a bad outcome – the difference between having a decent package of insurance versus none at all. The core of the game compares an optimal outcome to all other outcomes – the difference between having the perfect package of insurance, tailored to the specific risks that an individual faces, versus any other package (or none at all).

The reason why adverse selection is more a theoretical than a practical problem is because, in the real world, we are more interested in ensuring we are in the feasible set than in the core of the game.

If an individual does not have the perfect insurance package, that does not necessarily mean they will drop out of the market. They will only do so if the costs involved in finding a better alternative – such as gathering information about different options and coordinating with others – are sufficiently low and the benefits are sufficiently high that it will be worth their time and effort. This provides an in-built brake on the emergence of adverse selection mechanisms.

(b) The best way to provide social egalitarian public goods may not be through health insurance

Why do governments get involved in the provision of health care? As I noted in the introduction, Heath suggests the most powerful argument is that governments are able to provide services like health care more efficiently than market forces (in the economic sense of producing Pareto improvements). This is because governments are able to create – or facilitate the creation of – large risk pools that distribute the costs of health care more evenly among the population than would otherwise be possible.

Perhaps the more common argument for government involvement in the provision of health care, however, is that this promotes equality. Yet, as Heath points out, the best way for a government to promote equality is usually through the tax system, specifically through progressive taxation which can be used to redistribute wealth and income from rich to poor.

Granted, Voorhoeve’s social egalitarian argument is distinct from other egalitarian arguments in its claim that healthy people have a prudential reason for wanting others in society to be healthy too. Promoting health among everyone in society produces social egalitarian public goods which, in turn, are valuable for all. The normative basis for this argument is efficiency, rather than equality.

I think, however, that the link Voorhoeve makes between social egalitarian public goods and efficiency is tenuous. It would be far more natural to see the value of social egalitarian public goods as consisting in the fact that they promote equality. They are desirable more because they make society a fairer place than because they make each individual better-off. If this is the case, then, as Heath suggests, the best way to provide social egalitarian public goods may be through progressive taxation rather than health insurance.

This intuition can be motivated by a simple thought experiment. Recall unhealthy Bob and healthy Jill. Imagine also that Bob is wealthy, while Jill is poor. Mandating a minimum package of health insurance in this case could actually be regressive, with poor Jill subsidising rich Bob. Jill might reasonably object if we tried to justify this using Voorhoeve’s social egalitarian argument.

“You might have increased equality in one way, through the creation of social egalitarian public goods,” she could say. “But you have decreased equality in another way, through a forced transfer from someone poor to someone rich”.

If, instead, the government were to use progressive taxation to provide social egalitarian public goods (topping up individual insurance contributions), this situation would not arise. A greater proportion of the social egalitarian public goods would be paid for by rich Bob than by poor Jill.

There are, moreover, precedents for governments using progressive taxation in this way. For example, the subsidisation of transport in hard-to-reach areas and public investment in digital connectivity are usually funded in this fashion rather than via public insurance schemes. These are policies, furthermore, which can be justified (at least in part) by an appeal to the fact that they provide social egalitarian public goods.5

5This is related to a broader critique of a tradition in egalitarian political philosophy, which views health as an area where government involvement is especially important. Arguably this tradition pays too much attention to health and not enough to other important issues like transport or communications. Government involvement in these areas can be justified using similar arguments to the ones which this tradition puts forward in relation to health.

Conclusion: public health insurance without mandates?

Voorhoeve gives two arguments as to why it is permissible for the government to mandate more comprehensive health insurance than some citizens want for themselves. I have argued these are both unpersuasive.

Where do we go from here? I see three options.

  1. Try a different route. Find other arguments that show why it is permissible for the government to mandate more comprehensive health insurance than some citizens want for themselves. I will not consider this option further.
  2. Bite the bullet. Accept it is paternalistic for the government to mandate more comprehensive health insurance than some citizens want for themselves but maintain this is the best option anyway.
  3. Reverse course. Hold that the government should refrain from mandating more comprehensive health insurance than some citizens want for themselves.

Biting the bullet is an unattractive option, given it would mean the government adopting a paternalistic policy. Yet there are some things to be said for it. This could build on findings from behavioural economics. The behavioural economics literature identifies a number of cognitive biases which cloud people’s judgements when they make decisions about how to navigate risk. These are not just one-off events, but systematic (and therefore in theory predictable) diversions from rationality.

For example, people tend to discount the value of the future in a hyperbolic way – seeing a positive experience in the present as dramatically more valuable than a positive experience a few years in the future. Moreover, when it comes to assessing small risks of significant harm, people can be innumerate – treating a low probability as zero probability.

Such cognitive biases could justify the government making some decisions on behalf of citizens, particularly in relation to risk, on the grounds that it is in citizens’ own interests. Yet the paternalism objection to this approach remains.

The more appealing option could be to reverse course. On the face of it, this may appear strange. If the government refrained from mandating more comprehensive health insurance than some citizens want for themselves, this could prevent those who opt out from accessing important but expensive health care when they need it and threaten the effective functioning of the health insurance market for those who remain.

For two reasons, however, I think these concerns are less troubling than they initially appear. The first is the argument I gave above suggesting that the risk of an adverse selection mechanism emerging in the health insurance market is quite low. An in-built brake on the emergence of adverse selection mechanisms means we do not need to worry as much about the effective functioning of the health insurance market in the absence of a mandatory minimum package.

The second is that there are ways to encourage citizens to buy a reasonably large package of health insurance without resorting to coercion. Most obviously, we could explain to citizens the power of pooling their risk of ill health with others and emphasise that, as they grow older and their chance of ill health increases, they will benefit from having paid relatively higher insurance premiums when younger.

More interestingly, we could appeal to citizens’ feelings of solidarity with others in society. Health insurance, risk pooling, and the nuts and bolts of the welfare state may sound technical and boring. Yet in large, modern societies, they are one of the most significant ways in which we are connected to others with whom we live and work. The stranger in the crowd, the person we pass in the street – simply by living alongside each other and pooling the risks that we face, we benefit each other. Communicated effectively, this reciprocal advantage may be enough to persuade each person to invest in a sufficient quantity of insurance – to the benefit of all.


Joseph Heath, ‘A Market Failures Approach to Business Ethics’ (2004)
—, ‘Reasonable Restrictions on Underwriting’ (2006)
—, ‘Three Normative Models of the Welfare State’ (2011)
—, The Machinery of Government: Public Administration and the Liberal State (2020)
Alex Voorhoeve, ‘May a Government Mandate more Comprehensive Health Insurance than Citizens Want for Themselves?’ (2018)