Health insurance: an oddity among insurance policies.

In this excellent article, Steven Malanga of The Manhattan Institute highlights the exceptional nature of health insurance as compared with other types of insurance. When it comes to health services rendered, our culture sees paying the bills out-of-pocket as the exception, not the norm. As Mr. Malanaga points out, most of us carry other types of insurance policies that protect us should a catastrophic event occur – like home insurance, car insurance, life insurance, even insurance on our valuable,sentimental items like jewelry. But, when repairs or updates to those insured items become necessary, we don’t call upon our insurance. We understand that everyday repairs due to wear and tear or even renovations that may improve or add value to the insured items are costs that we must bear.

Imagine calling on your insurance when you need a new coat of paint. You wouldn’t get very far would you? Take this one step further, and imagine trying to purchase an insurance policy to cover an event that has already happened. Your house burns down. Can you call and get an insurance police to cover your home and your belongings after the fact? Certainly not. If that were how the system worked, who would pay into the system before the catastrophe occurred? And, where would the money come from to pay for claims? And, imagine those premium rates for any suckers who actually maintained insurance prior to making a claims? (Assuming, of course, that there’s anyone would who do this which is highly unlikely.)

You might be thinking, but those are items or goods you’re talking about insuring and that they’re different than insuring people’s health. But, the point is that while the item (or person) that is insured may vary, the nature of insurance is all the same. Despite what Congressman Weiner might think, insurance is a good, just like other goods, that are sold in a marketplace. It is a essentially a contract, whose terms consumers should be able to shop around for and negotiate just like with other types of insurance. And, your insurance should be priced according to the coverage that you choose. For example, if you want a policy with more limited protection, then you will pay less for your insurance. Makes sense. If, on the other hand, you want an insurance policy that covers everything – including riskier treatments or holistic medicine for example, then you should pay more.

Or at least that’s how the insurance industry should work. The option to customize insurance like we customize or negotiate every other contract we enter into does not exist because of the government placing itself in between the provider and the consumer in what should be a completely private, contractual relationship. As Mr. Malanga points out:

“There are significant [] ways that government mandates treat health insurance differently, at great cost to all of us. Consider this scenario: You don’t have home insurance and a big storm comes through and knocks over a tree into your roof. You can’t just phone up an insurer, buy coverage and then submit a claim, even if you face financial ruin by not having the coverage. But that’s more or less what you can do in health insurance under so-called guaranteed issue rules, in which someone who hasn’t purchased insurance and gets sick can’t be turned down for coverage. Needless to say, states that have guaranteed issued, like New Jersey and New York, have the highest health insurance premiums in the country because healthy people know they can run the risk of not buying insurance until they get sick. Insanely, the health reform package now on the table in Washington would create a federal version of guaranteed issue.

In auto insurance, some states have given us our own private version of tort reform to keep premium prices low. In these states, a driver can opt out of the litigation lottery when he purchases auto insurance by promising not to sue for pain and suffering if he’s hit and injured by another driver. By doing this a policy holder can save hundreds of dollars a year on premiums. And yet for some reason the same option, that is, allowing us to buy a health insurance policy where we agree not to sue a health provider for pain and suffering if a treatment goes wrong, is not available, even though I imagine the cost savings would be enormous.”

Government regulators also require us to buy so much more health insurance. In auto coverage, for instance, states will generally mandate that we have certain minimum coverage to compensate anyone we may crash into, but otherwise regulators will leave us alone to decide which options (towing, collision) we want to buy. By contrast, states will require buyers of individual and small group health policies to load up on mandatory coverage, including options that many people don’t want to pay for, like fertility treatments. Politicians will often claim that they demand these coverages because they are looking out for our own good, but that’s a difficult case to make persuasively when mandates help make insurance unaffordable for many people.”

Justifying these regulations by saying the government is looking out for our own good is paternalistic and offensive. People enter into the marketplace and make decisions for themselves day in and day out without any help from the government. Health insurance should not be the exception. I understand that President Obama and many liberals find fault with insurance companies because they believe that operating based on a motive to make profits and fulfill your bottom line is evil. And so it follows that they believe that those evil companies must be reigned in and controlled in order to make the system more ‘fair’.

But, this comes at a cost to all of us. If you want to make something more available to a larger group of people and to bring down cost, you don’t impose more regulations or restrictions on that item. It is competition among private individuals and companies that brings costs down, increases supply and makes markets more transparent. The federal government has never and is incapable of producing these kinds of effects in a market.

The only way to improve an inefficient and costly market is to put the bargaining power back in the hands of the people and eliminate restrictions – on everything from where the good (in this case, insurance) can be bought from to what is or isn’t included for the price. Until then, as Mr. Malanga points out, “insurance costs will continue to spiral.”

*Originally published August 20, 2009 on American Issues Project Blog, here.

Tags: health care debate, health care reform