Obamacare 'Insurance' Brings New Meaning to Oxymoron

Insurance is a form of investment that serves an important part in maintaining efficiencies in the economy. Pooling risk and saving today for the unexpected of tomorrow shows personal responsibility and limits the devastating financial effects of living "for the moment."

Public insurance functions under a set of free market principles that create productive incentives driving efficiencies to benefit consumers. Competition, profit motive, fear of losses, and voluntary exchange provide counterbalancing forces that drive insurers to act in productive ways or go out of business.

Unfortunately, insurance is not limited to the private sector. Public (government) insurance programs operate under a different set of principles and disincentives. Without the "greed" for profit, fear of losses, and competition from rival companies acting to temper actions and create efficiencies, public insurance programs depend on good intentions and compassion.

These ideals may feel warm and fuzzy, but since human nature can't be changed, public insurance programs are doomed to failure. A glance at the all the coastal homes that have been constantly rebuilt after the sea became angry offers witness to the madness.

Premiums for private insurance are aligned to risk so many dangerous behaviors are avoided due to their high cost. On the other hand, public insurance premiums are far below what the free market would demand. This occurs because public insurance is risk blind; meaning officials take on risks that otherwise would not be insured by private companies.

After all, if the government is covering risk with other peoples, i.e. the taxpayers money; why not build on the beach or in high fire and flood prone areas when Uncle Sam is picking up the tab. Unfortunately, the public insurance recipe has been cooked by politicians more times than Enron could ever dream of.

When a person or group is sheltered from risk, moral hazards emerge. This protection allows risk takers to act in ways contrary to the actions that would be taken if the costs were fully carried by the individual. The free market protects against moral hazard, while government sponsored enterprise fosters its creation.

Look at Fannie Mae and Freddie Mac's insuring of sub-prime mortgages to people who did not have the credit to take on high risk debt. Excessive loans were acquired because housing gamblers shifted the risk burden to the government. As we all know now, this morality play, brought to us by our friends in government, eventually created severe market failure in the credit and banking industries.

Basic economics teaches us that like any subsidy, public insurance creates a price floor that guarantees a surplus of bad behavior, poor decisions, and misallocation of scarce resources. Big government do-gooders will tell you public insurance is a necessary safety net; but unless the laws of supply and demand have somehow been overturned by "our betters," the mesh always fails.

Examples of specific and ineffective public insurance programs run by the federal government include: flood, mortgage, bank deposit, unemployment, life, pension, and crop insurance to name a few. Of course the granddaddies of them all: Social Security, Medicaid, and Medicare were by the very nature of public insurance on a destructive path from the get go. And now we have public insurance for all, "Obamacare," the ultimate in gall.

Protecting losses that are far too risky to insure in the first place is an inefficient use of capital, and hinders economic growth by stifling wealth creation. By offering ideals "in the moment" in lieu of personal responsibility; government insurance protections drown Americans in a pool of toxic risk exposing everyone to devastation.