A group of well-minded citizens, with interests in charity toward their fellow human beings, amass a sum of one-billion dollars, which amounts to roughly three dollars for every person living in the United States. The idea is to buffer everyone from the effects of accidental damage or sudden disaster to individuals, their residences, and other major property. The heirs of the dead would be sheltered from the loss of their loved one(s). The victims of house fire or other catastrophe would be protected from undue financial loss. Those caught in auto accidents, would at least have the money to replace the transportation loss. People struck by disease or disability, would have their medical expenses covered, and maybe even the necessities of life could be covered. Any disaster would be distributed over the whole population, reducing the pressure on any one person, creating a nation of caring, sharing people. It sounds great, doesn’t it?
The administrators of this plan, hope to cover costs by investing in promising financial ventures. A dollar invested at 7% will double in ten years; at 10% it will double in seven years; at 20%... three and a half years; at 35%... two years. The trick is in finding stable “blue-chip” investments with a high rate of return.
The first year’s administrative salary and maintenance expenses run to 10%, with an additional 10% for each of the following years; so, without solid investments, the whole billion dollars will be gone in ten short years. This means that investments returning more than 7% must be found just to cover the billion-dollar loss; in fact, investments paying more than 10% are required, just to balance the first year’s attrition.
It gets worse: for, inflation rates are running at around an additional 7%, devaluing the billion dollars by 50% in just ten years. So, after ten years, the billion dollars is only worth half a billion dollars. Another 7% of returns must be found to balance this loss. Now, we are looking for investments that earn 17% or more annually.
It’s very possible to find business models that return far more than 17% annually. Sustained rates exceeding 40% are not unheard-of. I would not open a factory, store, or other enterprise that did not return this kind of money… it’s just not worth the risk. If you cannot recover your capital investment in a year or at most two years, you have become a high-risk investment.
How do you make that kind of money, year-in and year-out? It’s simple. It’s called hustle, sweat equity, hard work, industriousness. Suppose you have one dollar invested in candy; you make one penny for every dollar’s worth of candy you sell. If you sell one dollar’s worth of candy every day of the year; your one dollar capital investment has made 365.25 cents: that’s a 365.25% return. You don’t need large margins; you just need to turn your buck each and every day. Many businesses operate at around 100 turns a year; with only 1% margins, they can operate on a 100% return on investment (ROI), every year. Some businesses can only reach 10 turns a year; these must have 10% margins to reach a 100% ROI, or settle for lower profits.
In spite of such realities of business, have you ever heard of a publicly traded commodity with a cash ROI of 50%, 25%, or even 10%? I haven't either. Your savings account pays 2 or 3.5%, and brags that you are doubling your money every twenty to thirty-five years; when, in fact you are losing money to the tune of 3.5 to 5% due to inflation. If the kind of 17% or better ROIs necessary to protect our billion-dollar charity exist, I don’t know where to find them. The only way to make that kind of money is through diligent hard work.
Several points emerge from this study. The one point we are seeking to emphasize is that insurance programs, presented publicly as a sort of self-funding charity, cannot possibly work. All insurance, public or private, has at its core an unsustainable and somewhat fraudulent tax.
This includes government health care. The best way to solve the health care problem is through local direct action clinics and similar instruments. The expensive middlemen must be cut out of the picture. Who are these expensive middlemen, you ask? Annual administrative salary and maintenance expenses; as well as inflation and other hidden tax loads. Money goes from the hand of the patient to the hand of the doctor, and the neighbors chip in. Administrative costs are minimized: they most certainly do not line the pockets of multi-million dollar executives who do absolutely nothing to earn their keep.
The only way to help your needy neighbor is to roll up your sleeves and go to work. The Amish have a plan. Say your barn burns down. You are out the cost of timber, shingles, and nails. You throw a party; the neighbors put up a new barn in a day or two; food is pot luck; losses are minimized. If you lost livestock, somebody gives you a cow to start over. If hay was burned, sharing covers the loss. The community sweats and shares together.
Insurance simply does not work that way. Insurance has to pay multiple levels of middle men lining their pockets with multi-million dollar salaries and bonuses; middle men who do absolutely nothing to earn their keep. Insurance cannot be made to work, as long as administrative salaries and expenses of any magnitude must be born; as long as inflation eats away continually at the dollar in our pockets.