Mandatory Insurance: Autos vs. Health

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The National Center for Policy Analysis wonders: would mandating the purchase of health insurance, as Massachusetts will now be doing starting July 2007, do more to ensure that people actually have health insurance than mandating the purchase of car insurance does to ensure people have car insurance?

Some of the conclusions, from a brief analysis by Greg Scandlen:

Policymakers can get an idea of how well mandatory health insurance would work to reduce the number of uninsured by looking at another type of mandated coverage. Consider:

* All but three states mandate automobile insurance, but 14.6 percent of America's drivers remained uninsured in 2004, according to the Insurance Research Council.
* No state mandates health insurance, but 17.2 percent of the population lacked health coverage in 2004, according to the Employee Benefit Research Institute.
* In 17 states, the uninsured rate for auto is higher than for health.

This is a remarkable finding considering that driving is a voluntary activity and enforcement is relatively easy—making people show proof of insurance when they register their cars.

Higher punishment rates for failure to do so don't seem to correspond with increased purchase of auto insurance; the study finds that

most of the variations between the states for both types [auto and health] of insurance could be explained by two variables: 1) the rate of poverty in the state and 2) the level of health care costs in the state. No other variable was statistically significant. Specifically, they found:

* A 10 percent increase in the poverty rate was associated with a 7.4 percent increase in the uninsured rate for auto and a 7.1 percent increase in noninsurance for health.
* A 10 percent increase in the cost of health care was associated with an 11 percent decline in the uninsured rate for auto and an 8.5 percent decline for health.

These two variables explained 43 percent of the variation in the health uninsured and 27 percent of the variation in the auto uninsured. Mandatory coverage and no-fault variables, used in the auto regression, and personal income per capita variables, used in both regressions, had no significant effects.

I'm curious as to the causal links that explain this apparent connection between health care costs and auto insurance purchases.

Reason's Ron Bailey back in November 2004 wrote a detailed account of why he thinks that mandatory health insurance purchasing just might be the only hope, given current political realities, of ensuring that a vital private market in health care continues to thrive.

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  1. Ay, are there any other links to articles about the MA program, besides the one at “usaliberals.about.com”? I love the “Pros & Cons” section. Pros: everyone will be healthier and live happily ever after. Cons: some greedy capitalists oppose this.

    Assuming the system is really set up as this article states, it will provide an instructive example of what would happen if minimum wage were raised by a large amount. Assuming the penalty for employers not providing health insurance stays at $295/mo, that’s equivalent to a $3.70/hr pay raise for a part-time worker working 20 hr/wk.

    Furthermore, the comparison to auto insurance is extremely inapt. It’s possible to deny driving privileges to drivers without auto insurance; is it possible to deny living privileges to those without medical insurance? The article speaks of wage garnishments and tax penalties being used to enforce, but those wouldn’t be feasible when dealing with the unemployed (of whom there will be a great many after this program goes into effect).

  2. Crimethink–For the point that the NCPA study is trying to make, the auto-health insurance comparison is appropriate for the very reasons you state: if mandating auto insurance–which as you correctly point out is generally easier to punish for violating–fails to create an all-are-insured wonderland, why should we expect mandating health insurance purchase to do so?

  3. “It’s possible to deny driving privileges to drivers without auto insurance; is it possible to deny living privileges to those without medical insurance?”
    Damn your speedy fingers.

  4. Funny thing about making auto insurance mandatory. Its that omnipotent, unrigged,ungamed, inexorably logical, market defining Invisible Hand. When, in Vermont, auto insurance was optional, it was cheap. When it became manditory,(after buying pols w/ contributions) it shot thru the roof. States where your plates werent pulled, (Wi, say) or not issued until you showed proof of insurance, lots of people opted out. So then you need more laws, so you buy more pols, (or the same ones again) and you end up like the insanely expensive auto insurance hells of Ca, NY, & NJ.
    Ive yet to meet a “progressive” who can explain why an insurance co. must profit if I see a doctor. And Ive been turned away from private practices after offering to pay cash. And Ive yet to hear a good reason the most astronomically in debt , I mean, richest nation on earth cant provide some sort of basic healthcare outside of ill used E rooms. You know, to “promote the general welfare”
    But you all know that…..

  5. Brian Doherty,

    You are correct. Of course, if anything that makes this plan look even more unfeasible (if that’s a word).

    Here’s a link to the WaPo article, which is a little less biased. Reading this article, I noticed that those with extremely low incomes are required to “purchase” state-subsidized insurance plans at little or no charge. Only the kulaks who the state thinks can afford health insurance but refuse to buy it will be fined. I guess living a healthy lifestyle, eating right, etc, don’t excuse you from subsidizing those who don’t.

    Of course, there’s no way this system is going to be able to finance itself. The state has a pretty big nest-egg to fund the startup, but that will disappear very quickly. Once the system starts running out of money, we’ll see more strident calls for regulation of diet, exercise, and other personal habits…and I need not tell you folks where that rabbit-hole ends up.

  6. From a practical standpoint, I don’t think the auto insurance requirement is as easy to enforce as some of you claim. The reason many people don’t have auto insurance is that they can’t afford it. But they still need to get to work and such, so they drive without it. Getting ticketed really doesn’t change the equation any. They can’t afford the fine anymore than they can the insurance and they’re still going to drive without it.

  7. “Excuse me sir, but did you know you have a cracked tail-light? Could I see registration and evidence of insurance? And health insurance? Oh, no health insurance? You left the evidence at home? Well, I’m going to have to write you a ticket. You can send a copy of the evidence to the court to dismiss it. Otherwise, it’s an umpty-ump dollar fine. Have a nice night.”

  8. Why doesn’t the government just make a law against sickness, disease, and old age. Statistics show that the vast majority of medical treatment is required because of sickness, disease, and old age. If sickness, disease, or old age were simply made illegal, then there would be no need for medical insurance.

  9. The less than perfect mandatoriness of mandatory auto insurance has a real-world backstop that I’m not sure would be available for mandatory health insurance: uninsured motorist coverage. Auto insurers are required to offer such coverage, and most people consider this a fairly routine (and sensible) product to purchase. It nods toward reality — a lot of people won’t be able to (or just won’t) purchase mandatory insurance, so I will cover myself in case I am in an accident with one of those unfortunate (obstinate; feckless) individuals.

    I don’t believe the Massachusetts health plan involves such a backstop coverage option. But perhaps that’s because Massachusetts seem to be much more serious about making health insurance actually “mandatory” than anyone actually is when it comes to auto insurance. With auto insurance, it seems, the market has sensibly responded to the reality of government’s limits.

  10. My interpretation of the “dialog” regarding health insurance is that what a preponderance of individuals mean by “health insurance” is in actual fact “comprehensive free health care.”

  11. “Assuming the penalty for employers not providing health insurance stays at $295/mo, that’s equivalent to a $3.70/hr pay raise for a part-time worker working 20 hr/wk.”

    Crimethink – interesting point, but there is a subtlety there. $295/mo is, indeed, a $3.70/hr pay raise for a part-time worker working 20 hr/wk. On the other hand, it’s a $1.85/hr pay raise for a full-time worker. Furthermore, most workers in Massachusetts do not in fact make minimum wage. So this might simply end up LOWERING wages, with the difference going to the government to fund their new health program.

    But it’s also an incentive towards full-time employment and away from part-time employment. If you ask an employer, part-time employment is a positive boon to employees because it allows them to have “flexible scheduling”. But, speaking as someone who has held such employment, the “flexible” really benefits the employer far more than the employee. And nobody can live on 20 hours of low-wage work a week. These jobs are often not terribly demanding, and there’s no reason a healthy person couldn’t combine 2 or 3 of them – the limiting factor here is that schedules for lower-seniority employees are often completely random. Take it from someone who has never worked a part-time schedule and had it remain stable from week to week – people who try to juggle 2 or 3 part-time jobs generally end up spending their lives trying to negotiate schedules with each employer according to the whims of all the others.

    So this is really a subtle push towards discouraging part-time employment.

    Do I like this plan? I’m a liberal, but I fear it. It’s got a lot of free parameters. If you tweak them one way – high subsidies for a state-regulated plan with good benefits – you have Canadian style single-payer. Which for all its faults, is not the worst thing in the whole world. If you tweak the parameters another way – low subsidies, expensive, high-deductable plan, high penalties for non compliance – you end up taxing the crap out of manual laborers as punishment for not buying something that they can’t use and can’t afford, and giving them nothing in return, which pretty much would be pure evil.

    And forget the market – all these numbers get set by the Massachusetts government. I’m sure there will just happen, by pure coincidence, to be only one health insurance plan that qualifies for subsidized premiums.

    Either this will work, or shit will hit the fan, but there are a great many things to tweak here.

  12. There would seem to be a rather significant difference between auto insurance and health insurance: most auto insurance payments don’t benefit the policy-holder, but rather, the other party in an accident; whereas payments from health insurance companies benefit the policy-holder.

    This might explain why there are millions of people without health insurance clamoring to get it, while the equivalent demand does not exist among those without auto insurance.

    You’ve discovered that something people have to pay for, which poor people are not given any assistance in purchasing, and which they are unlikely to realize a benefit from, will lead to avoidance. From this observation, you’ve concluded that something people will have to pay for, which poor people will be given help paying for, and which they will receive benefits from, will have similar rates of avoidance.

    That’s it, I’m calling Helsinki. The world must learn of this brilliance, that they may celebrate it.

    (BTW, I think the Romney plan stinks. Linking health insurance to employment is the problem, not the solution.)

  13. joe,

    That’s not a significant difference; if the state gave out free auto insurance policies, I’m sure you wouldn’t have an uninsured driver problem. Most people would also get a plasma TV if the state gave them out for free.

    The problem with such a system would be that it would not be sustainable financially…just like this health insurance system.

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