In order to understand the reform of insurance it is necessary to understand insurance in the first instance. This chapter commences with an explanation of what insurance is or was supposed to be, what it became including the substitution of entitlements for insurance, and what reform proposes to do change health insurance.
What is Insurance?
Generally speaking, insurance is a contract between an insurer and an insured whereby the insurer agrees to cover losses of the insured specified in the insurance contract or policy in exchange for a premium payment. Insurance has as an underlying premise that the risk assumed by the insurer with respect to the covered losses is spread or balanced among many insureds seeking protection from the same losses; to elaborate, the risk of a loss to any one insured is spread over many insureds with the insurer guaranteeing that the loss will be covered. Insurers, of course, expect to make a profit—or, for nonprofit insurers, a return on capital sufficient to enable them to compete with the for-profit sector.
An entitlement is a distinctly different animal and refers to a government program that guarantees certain benefits to an individual or group of individuals. There is no element of “insurance” in an entitlement aside from the guaranty by taxpayers—or more accurately, buyers of U.S. government debt obligations that fund the deficit—that the loss will be covered.