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Obamacare misses the point of health insurance

By Scott Tibbs, April 16, 2010

Last month, the Democrats passed a landmark health care "reform" plan after years of demonizing the health insurance industry. The bill has two fundamental problems: it misses the point of health insurance and does not address the fundamental problem the health insurance industry causes in the health care system.

One of the things ObamaCare does (theoretically) is forbid insurance companies from denying coverage based on pre-existing conditions. But what is the point of insurance?

I insure my home against fire. In the event of a fire, I will get paid more than I have ever contributed to my insurance company through my premiums. The theory is that of the large pool of people paying homeowner's insurance, very few will have catastrophic events that require payment. Basically, a large number of people are pooling risk with the hope that nothing happens but with the knowledge that we will be compensated if something does happen.

Theoretically, that is how health insurance should work. A large number of people pay into a plan. The few people that are in the plan and get sick are covered by the premiums paid by everyone else - just like homeowner's insurance.

If we force insurance companies to provide coverage without regard to pre-existing conditions, that completely misses the point of insurance. If someone can get "insurance" coverage when they are already sick, that is not insurance because that is not pooling risk. That is redistribution of wealth. If that is the goal, then let's just admit that is the goal.

What the health care "reform" plan does not do is deal with the fundamental problem hat is caused by the insurance industry as it relates to the cost of health care. Insurance distorts the market by removing cost from relationship between the provider and the patient. If Bubba goes to the doctor, instead of paying the $50 office visit fee, Bubba may only pay a $10 co-pay. If Bubba had to pay the full $50, then he might shop around and see if he can get an appointment for a lower price. The same phenomenon exists in prescription co-pays.

If we're going to get costs under control, we are going to have to find some way of introducing more market forces into the health care system. If health insurance is used more for catastrophic coverage and less for day-to-day health care, there would be more incentives for consumers to seek lower prices and for providers to charge less or find ways to improve efficiency. We're also going to need to remove distortions in the market caused by government limiting competition.

Barack Obama isn't interested in that, because this is not and has never been about health care. This is about expanding the power of government.