Thursday, March 04, 2010

Insurance Exchanges

The purpose of the Exchange in Obamacare is to create a centralized place where people can shop and compare insurance offers. The market already provides a large number of such services. On the internet one finds companies like NetQuotes or

Of course, any independent insurance agent is more than happy to help you shop insurance options.

Insurance, by its nature, is an extremely complex product. The basic idea of insurance is that consumers would have one financial transaction that would essentially handle all of the complex transactions related to maintaining one's. With this one transaction handling the most important aspects of one's life -- their health -- the insurance market evolved the insurance agent paradigm.

As insurance is a complex transaction that involves a great deal of personalized knowledge, the system of independent insurance agencies is the best mechanism for seling the product.

Insurance agencies are open to the public. Personally, I have never seen an insurance agency that refuses to give quotes to potential customers. For complex quotes, they might charge a fee. Often the quotes are above what a customer wants to pay for a given risk.

As the network of independent insurance agencies already form an insurance exchange, the bizarre centralized insurance exchange in Obamacare is reinvention of the wheel. The new exchange adds greater centralization to a sector of the economy that is already too centralized without solving any real problems.

Having read HR3200 and parts of the other insurance bills, it appears that that the centralized exchanges will place non-elected political operatives in the process. These operatives have the goal of redistributing wealth according to current political thinking. Such political operatives are unlikely to streamline the process, reduce real health care costs or provide more health care.

As changing insurance is a rare activity that involves a great deal of personal care, a nexus of independent insurance agents is the best form for an exchange. The centralized exchange is more likely to create a market where insurance companies trade people than a market where people buy insurance.

The history of centralized exchanges has not been good. Notably, the NASDAQ (as designed by Bernard Madoff) includes a number of hooks that allow insiders to send false signals to the market. The monetary markets, designed by the likes of Sorros, seem to open currencies to manipulation.

Politically controlled centralized exchanges are not in the best interest of individuals seeking ways to fund their health. If a centralized exchange was the best way to pay your doctor bill, the market would have evolved such a creation.

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