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.