Be Prepared: Insure Yourself

With all the brouhaha over the appropriate role of government in regulating health insurance, it’s reasonable that first we should define what insurance, as a commodity, really is.

Insurance is a group pooling resources in order to protect individuals within the group. It’s risk management. It’s statistical analysis. It’s saying, “I’m willing to pay the insurance company more than I would probably ever need, in order to protect myself from financial ruin if I happen to be one of the very few (unlucky!) who actually does end up needing more than most people.”

When properly defined, it’s obvious that the idea of “insuring” people who are already sick, from getting sick, is ludicrous. You can’t insure people with pre-existing conditions because you are no longer averaging risk. Instead you are filling the pool with those who are already defined as the “few, unlucky” — who require everyone else to overpay. It’s like buying car insurance after you’ve had an accident or buying homeowners insurance after the fire burns your house to the ground. The numbers just don’t work.

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