Why health insurance doesn't work

I was thinking about Castro-care (oops, Obama-care) on my way home from work last night, and it seems to me that the biggest reason that health insurance in general does not work is because it's insuring the wrong things. As Shawn noted a while back, insurance works well in cases where the risk is uncorrelated to other factors we can influence. However, medicine has many risks well known to be correlated to other factors, such as smoking and cancer.

And hence insuring for these factors--smoking, obesity, sedentary lifestyles, etc..--simply adds the cost of administering insurance to the overall cost of healthcare. Worse, it forces the nonsmoking, fit person to subsidize the behavior of the obese and smokers.

If we want to seriously reduce the cost of healthcare, we need to stop insuring for expenses we know we're going to have, and for expenses that we bring on ourselves.