The President doesn't understand what insurance is

The President made it clear today that he thinks that high deductible, catastrophic health insurance is bad insurance, and that low-deductible "comprehensive" insurance is good insurance. But low-deductible plans are not really insurance at all. They could more accurately be described as prepaid medical, or at best, one part prepaid medical and one part insurance. Furthermore, some of us believe that one of the primary causes of skyrocketing health care costs are these low-deductible plans, but the President seems to believe that insurance company profits are the source of the escalating costs.

Second, he argued that the purpose of insurance is to group both unhealthy and healthy people in the same pool. That's not correct. The whole purpose of insurance is to group people into various risk pools and charge premiums accordingly. That's why a home on the beach is more expensive to insure than a home 10 miles inland. According to the President's logic, both the beach home and the inland home should pay the same premium.

It's obvious that the President doesn't understand what insurance is.

Hedge fund manager Cliff Asness explains it much better than I do over at Bloomberg.