Insurance Is Not A Social Welfare Program

Posted on April 9th, 2009

I am sorry that I have not posted in several days. Between a failing root canal and some kind of beastly chest and sinus infection, it has been all I could do to patch myself up enough to make it to the house chambers for the last couple of days. We live in wonderful times with wonderful drugs that can make a nearly dead man function somewhat normally for a few hours each day.

To the topic at hand! There seems to be a fundamental misunderstanding among many in government and society about the nature and intent of insurance. How insurance came to be understood as a social welfare program is beyond me, but that is indeed what so many believe. Ben Franklin would be rolling in his grave if he realized what his introduction into the American experiment has been twisted into.

What insurance is
Insurance in its simplist form is a periodic payment made to an account to insure that sufficient funds will be availiable to pay for a particular future event. If we could decide WHEN that future event occured, then insurance could/would/should be considered a simple savings account. Future event “A” will cost 1000 bucks. Future event “A” will occur in 10 months. Periodic payment will equal 100 bucks each month.

But what if we don’t know exactly when the event will occur, but we know that the event will happen to at least once in every 10 months. Again, it is still a savings account problem except with a catch. What if Event “A” happens the first month? Dude! Your are definitely not getting a Dell now. But wait, there have to be at least 9 other smucks out there like yourself who have event “A” happening to them once in 10 months. Now you have 10 future events A1 thru A10 that will cost a total of 10000 bucks over 10 months. Each person will make a periodic payment equal to 100 bucks a month for a total payment of 10000 bucks over 10 months. If event A1 thru A10 occur one per month, then all is well and the insurance “savings” account remains solvent.

But what happens if events A1 to A10 all happen so that the insurance account becomes insolvent? Well, even though each of the “investors” independently may not be a good credit risk, lenders view the group more favorably and will loan operating funds. This is not without risk, so the lender will rightfully expect cost (interest and loss of capital use) plus a premium to guarantee solvency of the insurance pool. Now the periodic payment is 110 bucks per month.

What if it is discovered that event “A” only occurs once every twenty months for folks who do not suck toads? Well, if no one in the group are el chupasapo ^TM then the insurance “premium” will fall to 55 bucks per month for each person. But lets say that half of the group were el chupasapo ^TM and half were not. In that case, the periodic payment would be 110 bucks per month for el chupasapo ^TM and 55 bucks per month for the rest right? Right! Now, the El Chupasapos out there may decide they do not want to be part of such a plan, or the non El Chupasapo might decide they would prefer to only be in a plan with other non El Chupasapo members. No offense of course, this is strictly a business decision. I am cool with El Chupasapos and all, some of my best friends are El Chupasapos. It is just that I would prefer to only be burdened with my own risk, since I seem to be risky enough all on my own.

What insurance is NOT

Enter government. Talk about spoiling the plastic banana rock and roll good time we had going! Not only do they say that we have to cover El Chupasapos in our insurance “scheme”, but we also have to give them the same rate, even if the dreaded “Event A” had already occured. Uh oh, now not only are everyone’s rates going to be a minimum of 82.50 per month (assuming half are el chupasapos), but they will most likely have to be higher because most of the el chupasapos have already had event “A” occur.

I realise that El Chupasapos are probably born that way. It is really sad and all. The state government could perhaps do something to help the poor souls out (the federal government is prohibited by the U.S. Constitution, not that THAT has stopped them in the past). But lets keep things honest. It is a social welfare program that has nothing whatsoever to do with the concept of insurance. By attempting to force this concept upon the free market, the response will invariably not be what the soveriegn omniscient legislators of the universe intended. The end result of which is utter FAIL. Not that THAT has stopped us in the past.

By attempting to force insurance to be a social welfare program, legislators not only destroy a legitimate business arrangement, but also fail to properly address a potentially legitimate social welfare obligation. Neither end up addressed properly and both end up screwed up. Furthermore, universal coverage without differential premiums based upon differential risks is NOT insurance. It is socialism pure and simple. Spades are spades, hearts are hearts, and I call’em as I see’em.

By the way, I have photographic evidence of El Chupasapo ^TM, so for all you doubters out there, just you wait. You will see. El Chupasapo does exist! I can prove it. The image is horrifying, so don’t ask. You have been warned.

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One Response to “Insurance Is Not A Social Welfare Program”

1. » Welfare economics Unteraargau Says:
   May 12th, 2009 at 2:30 am

   [...] Insurance Is Not A Social Welfare Program [...]