It appears that Congress will do nothing about healthcare andit may be time to take a look at the system and apply somepractical risk management (RM) principles.

In RM, the first step is identifying exposures. For health, thatis everybody. What else is exposed? Our health dollars. We spendmore than any other nation on healthcare, but are only 13th inhealthiness. We have a high infant mortality rate, and the primarycauses of death are drugs, auto accidents, diabetes-relatedproblems, Alzheimer's and cancer.

The next RM step is to identify the hazards leading to loss.There are many: poverty, drunk driving, homelessness, easy accessto narcotics, lack of exercise, guns and plain stupidity.

The next RM step is to address the hazards. New research showsthat the better educated and well-exercised people are, thehealthier they are. Fewer college graduates smoke, use drugs or eatthemselves to death. Education is also about the only way out ofpoverty, regardless of race. The way to reduce or eliminate thehazard is to improve the nation's higher educationopportunities.

Drug abuse is severe and the so-called “war on drugs” hasfailed. Many are manufactured or grown here in the U.S. How canthis hazard be eliminated or reduced? Individuals with a job andfamily may be less likely to turn to drugs, but there is a four tofive percent where employment is evasive.

One side effect of the drug epidemic involves shootings. Even ifdrug dealers are shooting at each other, too often it is aninnocent bystander who gets shot. That, too, raises medicalcosts.

Related: Building better prescription drugpractices

Risk financing

Risk is managed in two ways: control of risk to reduce thechances of loss or eliminate it entirely, and risk financing byarranging a way to pay for loss that does occur. That is whatprivate and group health insurance and for those without suchcoverage, Medicaid (and Medicare for the elderly) and Obamacarewere supposed to do.

There are lots of ways to control risks, once the exposures andthe hazards that lead to a peril are identified and addressed.These affect how much financing is needed. In medical care,addressing fraud and abuse of the care system, as discussed lastmonth, will help greatly. When nobody is looking at the bills andjust paying them, costs soar.

Another is the cost of prescription medicines. TV ads areexpensive, as are the medications doctors prescribe. Plus,physicians are prescribing too many antibiotics and narcotics. IfCongress wants to address this, either nationalize the drugindustry or impose controls.

There are other ways to finance risk: pay out of pocket; budgetand reserve for it; borrow to pay the bills; declare bankruptcy, ortransfer the risk to someone else under a contract. That is allinsurance is: contractual transfer of costs in the event of acovered loss.

But insurance is based on the principle of spreading the riskamong a large number of homogeneous exposure units; take away themandate, and the system fails. Take away all the other originalplans for the ACA (Obamacare) like expansion of Medicaid and thecreation of pools of insurers and there's nobody to whom totransfer risk. The system has failed.

Ken Brownlee, CPCU, is a former adjuster and risk managerbased in Atlanta, Ga. He now authors and edits claims-adjustingtextbooks. Opinions expressed are the author's own.

Related: Is it possible to fix the healthcaresystem?