The Democrats’ goal of healthcare rapidly turned into health “insurance” care. This to supposedly provide healthcare to some inflated numbers of people who had no healthcare. But by law everyone has healthcare, just get to the emergency room and you will be cared for with or without insurance. So the leftist needed another tack to take over 16% of the U.S. economy. Thus Obamacare magically became Obama insurance.

Health insurance is not “insurance” in any true sense of the word. True insurance is a contingent indemnity against loss provided by a business that assesses and pools specific risks. As Clifford Asness states in his Bloomberg.com article today, “Don’t Ask” Is No Way to Run Health Care, “true insurance comprises two things: The first is a goal: to protect against very large losses. The second on is a method: the proper assessment and pricing of risk.” So fire insurance assesses the risk of occurrence of fire in a specific location and the expected degree of damage from fire in that location. Facts and circumstances like construction type, proximity to a fire plug or station, and repair or replacement costs are taken into account. Since others need such insurance like risks will be pooled and spread by the insurance company. To cover expected losses, that company will maintain reserves and beyond that has its owners capital. Companies can incur underwriting profits or losses depending on their experience in the specific insurance pools.

Health “insurance” in this country amounts to prepaid health care expenses. It does not indemnify against only large risks but prepays for every cold and sniffle. In fact it is practically speaking the only way in which medical providers get paid for their services. It is this fact–third party payment–that causes overuse and unnecessary costs.

Think about it. Employer provided insurance benefits are an expensive cost of compensation, yet they are not taxable as compensation to the insured employee, even though they are deductible to the employer. From the employee’s perspective, medical service is a free service.

“Having businesses offer full health coverage almost from the first dollar spent is phenomenally inefficient. Health care is over-consumed because it is essentially, at the margin, free to employees and too cheap — fully deductible — to the company. All incentive for the consumer to control costs is abandoned. Furthermore, the system is nonportable and famously bureaucratic, with the associated costs in time, money and frustration.

“To put the “insurance” back in health insurance, we need to remove the tax deduction for routine health-care expenses, whether the coverage is purchased by employers or individuals. If we choose to retain a deduction for insurance against large losses, it should apply equally to plans bought by individuals directly and those provided by employers.

“Among other benefits, this would remove a large tax deduction and the savings could be used to reduce other tax burdens. It would also solve the portability problem because without a tax advantage at work most individuals would purchase their own insurance. Most importantly, by buying their own insurance, designed to protect against only relatively large losses, individuals would become conscious of medical costs.”

In short, we need Consumer Driven Health Care (CDHC) where consumer pays for what he gets. He will spend economically both on high deductible insurance and generic drugs. His policy will be portable. It will be highly competitive if companies can cover across state lines and if tort reform reduces the costs of defensive medicine. With increased use of Health Savings Accounts costs will be further reduced. And yes, major pre-existing diseases can be inexpensively covered by subsidized high risk pools.

Tom Motherway