1. An insurance policy is intended to spread the risk of high-cost events from one party to a group of others. This can be a high-cost/low-probability event like a house fire, or a high-cost/defined-probability event like a person's death. In the case of a homeowners' insurance policy, the policyholder may pay premiums for decades and never have a single claim. That's fine, because the whole purpose was to protect the homeowner from a catastrophic loss that might never happen. In the case of a life insurance policy, the coverage is for an event that will happen with 100% certainty, but at an unknown time in the future.
2. In both of the cases I mentioned above, the insurance company can use a combination of actuarial calculations and limits on financial exposure to accurately assess the risk and price the insurance accordingly. The company that insures a $400,000 home knows that its maximum loss is $400,000 if the home burns to the ground. The company that underwrites a $1 million life insurance policy knows that it will pay exactly $1 million to the estate of the policy holder at some point in the future.
3. Medical insurance doesn't operate like traditional insurance coverage because the insurance company has enormous unknown financial exposure. A person can pay health premiums for years without making any claims, then suddenly incur huge medical bills for procedures and treatments that didn't even exist a few years ago. This is the equivalent of buying a life insurance policy for an unknown death benefit that may be $1 million but may also be $100 million ... or a homeowners' policy on your $400,000 home that will cost anywhere from $400,000 to $4 million (or more) to rebuild if it burns down five years from now.
There's no way an insurance company can deal with this using actuarial tables and other traditional methods. In the past, a insurance company would be able to accurately measure its maximum financial exposure for medical policies by imposing lifetime limits on coverage for each policy holder. ObamaCare included a provision that eliminated lifetime insurance caps. Is it any wonder why health insurance premiums began skyrocketing immediately?
There's nothing wrong with a catastrophic health insurance policy that only covers catastrophic illnesses and injuries. Very few people in this country want such a thing, because we're used to living in an environment where we can get whatever medical treatment we think we need, and pass the costs off to others. Maybe we're starting to figure out that the "others" include US now.
All quite rational, and irrelevant to my preceding point...
Insurance coverage for well-care is an asinine idea as well, but also outside this scope.
My question was, “who stops the market from absorbing these risks and costs, absent government regulation?”