> In a concrete example, let’s say that our household wealth is $25,000, and we’ve just gotten a motorcycle with some miles on it already.
> Assuming no deductible, would this be worth it? Yes!
> If our wealth had been $32,000 instead, the insurance would no longer have been worth it
This is way too simple. If you're rich then you stand to lose more in many situations, and may be deemed a lower risk so insurance is cheaper. If you're in reasonably good health and on the verge of being evicted if you miss a paycheck, paying hundreds per month for health insurance to head off unlikely risks is a bad idea. Probability is supposed to account for this but you might know that you're not getting pregnant or having expensive surgery, for example. An insurance company cannot assume such a thing. So they are obligated to charge you way more than you can ever get back. It is also relevant that if you miss insurance payments, you will lose coverage.
Another wrench in this methodology is that some costs are not purely financial. What price do you put on the risk of dying from a lack of treatment? Is that risk higher than the risk of ending up destitute and uninsured anyway?