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Saturday, October 24, 2009

What insurance is

The biggest controversy attached to the ever-evolving health bill is whether to include a public option. There seems to be much less publicity about the insurance companies being forced to take on people with pre-existing conditions. This stands the idea of insurance on its head.

If, once you develop a serious -- and expensive -- illness, no insurance company can turn you down, there is little incentive to purchase insurance beforehand.

You can't wait until your house burns down to buy fire insurance, and then expect to be paid off for the fire. Neither can you buy life insurance on people who are already dead. When you buy insurance, you're guarding against the small possibility of a catastrophe. If a lot of people are willing to pay a small amount for a tiny chance of a large payout, then insurance companies can make money and survive.

In that sense it's not unlike the lottery, which is a government program to make money.

If, once you found out what the winning number of the previous lottery was, you could then retroactively order a ticket with that number, and demand a payout, the state would soon go bust. Yet this is what Obama is recommending for insurance companies.

Several versions of the new plan make it compulsory for everyone to buy insurance of some sort, and include a $3700 penalty for people who don't. But how could this possibly be enforced? And although Obama has said that he won't raise taxes a single dime to pay for this health plan, that $3700 smells an awful lot like a tax, just under a different name. I suppose that would be one way to pay for the new "insurance."

The fundamental problem is that you can't repeal the basic laws of economics, any more than you can repeal the law of gravity. Yet this seems to be what the Obama administration is attempting. They did it when they shortchanged the GM and Chrysler bondholders in favor of the unions. And they want to do it here. To be fair, the Bush administration also did it with their TARP program. They also did it when they changed the rules for mortgages in an effort to get more minorities into houses. (That sure worked out well.) In fact, any interference on the part of the government can be construed as interfering with the laws of economics. But most government interference, at least to date, is meant to gently nudge things in one direction or another, not turn economics on its head. In general, the more government interference there is, the more the laws of economics are disrespected.

But that's sort of like messing with Mother Nature. Many drugs have side effects, which is why in that field, pharmaceutical companies which want to mess with Mother must have their products go through very extensive testing, including double blind experiments to measure every conceivable side effect.

The health insurance bill will go through no such testing process. It will just be sprung on the public immediately, full force.

In a way, though, Obama's effort to nationalize and unionize as much of the economy as possible has been tried before. It was tried in the Soviet Union starting in 1917. It was tried with a number of Eastern European countries a little later. And it is still being tried in Cuba and North Korea now.

Judge for yourself how successful those experiments have been.


Anonymous said...

The following quote appeared in a recent Pat Buchanan article:

"Remember," said John Adams, "democracy never lasts long. It soon wastes, exhausts and murders itself. There never was a democracy yet that did not commit suicide."

If Obama gets his way with health insurance 'reform' with a public option and the cap and trade legislation, this country will take a giant step toward the fruition of John Adams quote.

It seems to me that there are two sensible, low risk changes to the health system: decouple health insurance from employment and allow health insurance providers to compete across state lines. This would increase competition, level the playing field for people buying insurance, and eliminate the present possibility that people have of losing coverage through no fault of their own and then being unable to buy new coverage due to preexisting condition (this is horribly unfair).

We need no climate control legislation. This is nothing but a guise for massive tax increases and government expansion and intrusion. It will put the breaks on our already weak economy and do very little to change the CO2 levels in the atmosphere. There is no indication that we are in peril. In fact a warmer earth is good for humanity (historically lead to greater prosperity), and higher CO2 concentrations increase crop yields, which is also good.

How about unshackling ourselves and taking full advantage of US oil and natural gas reserves in this country? This would create jobs and increase energy supply - which can't hurt energy prices.

Someone forwarded me this web video link a while back:

(the Adams quote is also used in this video)

How often is the US referred to as a democracy, and how often as a republic?

Yet another Obama goal is to grant amnesty to millions more illegal immigrants. Its not difficult to see that this could be the final nail in the coffin - leading to the tailspin unbridled Democracy is capable of generating.

- Ed

John Craig said...

Ed --
Thank you, a lot of great points. I agree completely about insurance, and also about cap and trade and immigration. (I'm a little more agnostic about climate control in general.) It's quite possible that people will look back on this administration as the beginning of the end.

Anonymous said...

Outstanding post, along with Ed's reply on both topics. This administration understands fully what the consequences are of their decisions, they are hungry for the power that will be obtained.What they fail to understand is the will of the american people who have always been free. It will be some small detail that will finally set off the resistance and once that occurs...God help us all. America will be transformed, for the better or worse is still to be determined.
Mad Dog

John Craig said...

Tom -- Thank you, and thanks for the comment. Yes, Obama knows exactly what he wants and it's not the centrist philosophy he outlined during the campaign. I certainly hope it doesn't end up as apocalyptic as you're making it sound though.

Anonymous said...

I have just watched the excellent little video that Ed posted. Very thought provoking. Is the problem with Republicans that they aren't Republican enough? (We can't blame the Democrats for being Democrats.) In the economic arena the US is tending to crony capitalism, an economic oligarchy. It seems to me that the Republicans have been as complicit (or more complicit) in this as the Democrats.

On the subject of the health "insurance" debate (I personally think that health insurance is only partly insurance and the non-insurance part is the part that needs most help) the thing I object to most is the crudity of the debate on the public option and the frequent crass mis-characterizations of other countries' systems, usually dissing the public provision of health care. Having lived under the UK system, it surprises me to hear it referred to exclusively as a public system - it isn't. Many people buy (through their companies or privately) health insurance policies which pay for private health care. The private sector is large and thriving (and attracts a large number of apying foreign patients). Also, at least in my experience, it is far easier to navigate with much more transparent economics than in the US.

Back to the freedom theme, I hope Mad Dog is right. But I see little sign of Republicans leading the resistance! And I agree with John - the signs of decline and fall seem pretty clear. I think I'll ask for the Vidal and Ferguson books for Christmas (sorry, for my seasonal gift at the end of December).