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Why Do You Care Whether I’m Insured?

Written by John Goodman

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If you care a great deal, I’ll give you an account number you can use to make a deposit. 

[Note to Self: Send this Alert to the folks at Commonwealth. Also to Nancy Pelosi and Harry Reid. CC Uwe Reinhardt as well. You never know what they might do. They certainly talk about this topic a lot.] 

While you’re thinking about the initial question, here are a few follow-up questions:

 

I’m sure there are busybodies who would like to run everyone else’s life. But society as a whole has taken a more rational approach. We basically don’t care whether people insure to protect their own assets (at least we don’t care enough to make them do so). But we do care about events that could create external costs for other people.

Through Social Security, we force people to pay for life insurance benefitting dependent children (who could potentially become wards of the state) but not for a working-age spouse. All but three states force people to have auto liability insurance (covering harm to others) but not casualty insurance (covering one’s own car). We basically don’t care whether people insure their own homes, but we force them to contribute to retirement and disability schemes to prevent their accidental dependency on all the rest of us.

Here is the principle: government intervenes in those insurance markets where people’s choice to insure or not insure imposes potential costs on others. Because of our basic human generosity, we’re not going to allow people to starve or live in destitution. So when people don’t insure for retirement, disability, etc., society is going to step in and help (where help is needed) anyway. Implicitly, we have a social contract that socializes the downside of certain risks. If we allow the upside to be left to individual choice, we will have privatized the gains and socialized the losses. When people don’t bear the social cost of their risk-taking, they will take more risks than they would otherwise.

Another way to think about the problem is in terms of the opportunity to become a free rider on other peoples’ generosity. Consider the person who has no life insurance (for dependent children), no disability insurance and no retirement savings program. Because he is not paying premiums or saving for retirement, he can consume all of his income and enjoy a higher standard of living than his cohorts. But if he bets wrong (dies too early, becomes disabled, reaches retirement with no assets), he is counting on everyone else to help him out.

How does all of this apply to health? Considering all of the trees that have been felled to facilitate health policy writing, you would expect an exhaustive literature. But aside from Robin Hanson’s thesis that health care is different (which I’ll save for another day), there is almost nothing!

I’m not kidding. There is virtually nowhere you can go to find a rational, well-thought-out, consistent analysis of why you should care whether or not I have health insurance.

After you finish reeling from that revelation, allow me to partially fill the intellectual void.

If we are concerned that the uninsured will impose an external cost on the rest of us, there is a simple remedy. Impose upon them a fine equal to the expected cost of any unpaid medical bills they might occur. Elsewhere, we have estimated that the full time uninsured get about $1,500 per person in free care, on the average. So the appropriate fine is $1,500.  

Note, however, that uninsured middle-income families are already paying higher taxes (probably in the range of $1,500) because they do not have the tax subsidized insurance their neighbors probably have. So far from being free riders, these families appear to be paying their own way. Of course, the extra taxes the uninsured pay tend to go to Washington, D.C., while uncompensated care tends to be delivered locally. This mismatch of revenue and expense is not caused by the uninsured, however. It is the result of government not having its act together.

Note: The above argument applies to middle-income families. It doesn’t work very well for people who have assets—say, $1 million or more, and that’s about 1 in every 30 people. Also, the argument becomes weaker the lower a household’s income. People who cannot afford health insurance anyway are not willful free riders. They are not making choices that impose new costs on others. So there is no obvious social reason to force them to insure. They will need health care from time to time, however.

What is the best way to get health care to people with low incomes and few assets? The answer is not Medicaid. Nor is it SCHIP. Nor is it any other system, inappropriately modeled on the “insurance” approach to health care. More on this in the future.

Bottom line: aside from the need to coordinate government revenue and expenses that relate to the uninsured, it’s not at all clear why you should care whether I have health insurance.

If I have overlooked something, I invite readers to weigh in.

John_GoodmanJohn C. Goodman is president and founder of the National Center for Policy Analysis, a free-market think tank located in Dallas, Texas.  The Wall Street Journal and the National Journal, among other media, have called him the “Father of Health Savings Accounts.” Dr. Goodman’s health policy blog is the premier right-of-center health care blog on the Internet.  It is the only place where pro-free enterprise, private sector solutions to health care problems are routinely examined and debated by top health policy experts across the ideological spectrum.

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