Insurance

Fear No Hurricane: Obama Quietly Approved Federal Subsidies to Houses in Floodplains in July

President Obama expanded a program offering subsidized insurance to ocean-front homeowners this summer.

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Four months before Hurricane Sandy hit the East Coast, President Obama quietly signed legislation expanding the federal program that offers taxpayer-subsidized flood insurance to ocean-front homeowners.

The law extended the National Flood Insurance Program for five years while also opening the program for the first time to multi-family properties like beachfront condominiums. The flood insurance provisions were part of a bill known as the Moving Ahead for Progress in the 21st Century Act that passed the House 373 to 52 on June 29 and the Senate by 74 to 19 the same day. President Obama signed it into law on July 6 with remarks that dwelled on the transportation spending and student loan-related language in the Act, but made no mention at all of the flood insurance.

The Left tends to look at hurricanes as examples of how government works well—the National Weather Service warns people, police and firefighters help with evacuations and rescue, and the Federal Emergency Management Agency helps clean up. Free-market types, by contrast, argue that hurricane casualties are partly the result of unintended consequences of government actions: without federal flood insurance, many fewer people would take the risk of living in low-lying areas vulnerable to storm surges.

Television reporter John Stossel, who once had an oceanfront house washed away by a storm, has called the flood insurance program an "outrage" and "dumb."

"The subsidized insurance goes to affluent homeowners on both coasts — from Malibu Beach, where movie stars live, to Kennebunkport where the Bush family has a vacation home, to Hyannisport, where the Kennedy family has a summer home, to the Hamptons, where I bought my house," he wrote.

In part to respond to criticism such as Mr. Stossel's, this summer's five-year extension and expansion of the flood-insurance program was described by its backers as "reform." The legislation is sometimes known as the Biggert-Waters Flood Insurance Reform Act of 2012, after its champions, two congresswomen—Judy Biggert, a Republican of Illinois, and Maxine Waters, a Democrat of California.

The federal flood insurance program shares several characteristics with the Medicare and ObamaCare programs that provide health insurance. Like Medicare, the federal flood insurance law was originally enacted under President Lyndon Johnson. And as is eventually predicted for Medicare, "current premiums are not enough to cover expected costs," and the flood insurance program wound up costing $18 billion.

As ObamaCare does, the flood insurance program operates through private insurance companies whose annual premium increases are limited by the government. And, as with ObamaCare, the flood insurance program features "community rating," which means the riskiest cases are not charged the highest rates.

This summer's extension of the flood insurance law was a textbook example of how the system in Washington works, or doesn't work. Though billions of dollars and hundreds of thousands of lives were at stake, the extension got virtually no mainstream press attention. It was covered extensively, however, in Insurance Journal, a trade publication that caters to the industry with headlines such as "Agents, Insurers Cheer Congress OK of Flood Insurance Reform Bill."

The 584-page congressional conference report that included the flood insurance provisions was filed on Thursday June 28; the House and Senate both voted on it on Friday, June 29, an apparent violation of Speaker Boehner's pledge that the text of bills would be posted online at least three days before a vote. A surprising number of congressmen and senators with reputations as conservatives voted for the law, including Paul Ryan and Jeb Hensarling, Jon Kyl and Mitch McConnell. Among the minority who opposed the bill were Marco Rubio, Pat Toomey, Jim DeMint, Ron and Rand Paul, Rob Portman, and John Cornyn.

The next week was interrupted by the Fourth of July holiday. When Mr. Obama signed the bill into law on July 6, he was almost apologetic, saying, "We wouldn't normally keep you this late on a Friday afternoon."

Mark your calendar for 2017, when the federal flood insurance program will come up again for renewal. Does it really have to take a 100-year storm to cause Congress to come around to the idea that subsidizing home-ownership in flood plains may not be something for which it is worth borrowing money from China?