Monday, April 05, 2010


From the Clean Government blog:
The essence of O-Care is quite simple: Health insurers are now de facto Government Sponsored Entities (GSEs) by virtue of extensive federal regulation of the terms, conditions and comparative rates health insurers can offer. The law tells insurers how to run their business and then offers to pick up the cost where conditions prove uneconomic. Hmmmm. If this all sounds a little dodgy, your instincts are correct. We tried this kind of experiment in housing with GSEs: Fannie Mae and Freddie Mac, which were pressed to buy non-economic sub-prime loans dressed up by intermediaries to look respectable via bundling and shaky insurance.

This secondary market "nudge" by the government was a major reason for the bubble and subsequent collapse of the financial system under the weight of $2T of bogus AAA securities. Expect similar results from health insurers who will look a lot like the housing GSEs going forward. Fannie Mae and Freddie Mac started with a modest mission to help first time home buyers and morphed into near monopolies in the residential home market ... which then collapsed.

It gets even worse with O-Care.

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