Is Health Insurance Really Insurance – Or Something Else?

Recent passage of the Obama administration’s health-care “reform” package prompts reflection on the underlying meaning of health insurance. This leads to a better understanding of the causes of health-care inflation and proposed remedies. What is Insurance? Insurance is a process for the transfer and amelioration of risk. Risk is transferred from risk-averse people to risk managers. The managers are qualified professionals who either bear the risk or reduce it to manageable dimensions by pooling large numbers of risks. Risk is defined by the variability of possible outcomes. An insurable risk is unpredictable at the individual level but predictable in the aggregate. That distinction [...]