Sunday, March 4, 2012

Insurance and Debt

America is being crushed under loads of debt.

Insurance is part of this debt problem.

In the classical Free Market, people would fund health care by building equity in times of health and using that equity in times of illness. People would supplement the care of others through charity. Charities are funded by building equity then distributing equity to people in times of need.

The idea behind insurance is that a society can fund health care through cash flow. With employer based insurance, a company will put all of the health care resources of the workers into a common pool that they replenish on a quarter by quarter basis..

This idea is popular with the first generation that buys insurance because they get to spend the money that they had been saving for health care.

Sadly, with insurance, people trade their personal risk with a systemic risk.

The cash flow of a company is not constant. Paying for health care expenses from cash flow creates a systemic risk for a company. Health care is a now a large fixed expense that companies must pay each quarter.

A dip in the market means that a company's financing goes from black to red with the fluctuations in cash flow.  When the company goes bankrupt, the workers find that they no longer have the health security that they thought their insurance policy bought.

The goal of the Medical Savings and Loan is to restore the concept of equity financed health care. It takes the premium that goes to insurance and splits it into savings accounts, loan reserves and grant foundations.

NOTE: Because the MS&L seeks to fully restore the paradigm of equity financed care, it builds substantially higher savings than an HSA/HDHC program. My models indicate that most Americans would have hundreds of thousands of dollars for health care at retirement if they followed the MS&L program. An HSA/HDHC policy only has tens of thousands in savings. In a typical HSA/HDHC program, people will only have about tenth of health care financed through equity with bulk of care still funded through cash flow.

Developing the MS&L would help restore the concept of equity financing and would provide a bright future for America's children. If anyone is interested in hosting a presentation on this concept, please contact me.

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