Car Insurance vs Health Insurance

Earlier this evening, I posted a long comment on a post at Secular Right.  In the post, blogger Heather MacDonald said that she was, in principle, a supporter of the idea that the law should require people to buy health insurance.  In support of this view, she pointed out that motorists are required to buy car insurance.  My reply:

“I see little difference between mandated car insurance and mandated health insurance—in most places, having a car is virtually a necessity of life” Car insurance and health insurance have a couple of things in common. The chief of these is that both categories of products are called “insurance.” The rest of the similarities, such as the fact that the some of the same companies sell them and some of the same agencies regulate them, stem from this point of vocabulary.

The similarities between car insurance and health insurance, however, are dwarfed by the differences between them. You choose an auto dealer, choose a car, negotiate a price for that car, arrange financing for it, pay that price, buy the fuel of your choice for it, decide which routine maintenance tasks you will perform on it yourself and which you will entrust to a mechanic, choose the mechanic who will perform those tasks, and pay that mechanic for those routine tasks, all without input from your insurer. If car insurance were the same thing as health insurance, you would be dependent on the insurer to make all of these payments and all of these decisions for you. To use mandates for car insurance as an analogy to justify mandates for health insurance, then, is like saying that because lightning rods protect your house from lightning, they should also protect your garden from lightning bugs.

If the USA’s political leaders were serious about controlling the cost of health care, in fact, they would move to make health insurance more like car insurance- not by making it mandatory, but by removing the tax incentives that reward employers for redirecting money from employee’s paychecks to health insurance premiums. Under our current system, a substantial percentage of the compensation US employers pay to keep their employees on staff goes, not to them in the form of money they can spend as they see fit, but to insurers to form funds from which employees can draw only in the form of medical expenses. Therefore, when those employees become consumers of health care they have no incentive to keep the cost of their health care down. Health care providers obviously have no such incentive. Even employers and insurance companies have only a very weak incentive to keep costs down, since employers are paying premiums with money that would otherwise go to the corporate income tax or to some other tax shelter. That’s why the cost of health care has for many consecutive years grown at a rate well in excess of the general rate of inflation, something which is not true of cars, car insurance, or any of the services car insurance usually covers.

If the corporate income tax were abolished, it would be possible for health insurance to become like car insurance. Consumers could choose and pay for their own routine health care, and pay also for insurance to cover catastrophic health expenses, as consumers now buy car insurance to cover catastrophic auto expenses. Doubtless, the modern world being what it is, there would be a political demand for substantial public sector subsidies for low-income people who have need of health care. So long as these subsidies were in the form of direct transfers of money to these potential consumers, they might leave the recipients with as much incentive to negotiate for lower prices as they have when considering the purchase of other goods and services that money could gain them. Not being as far to the right (or as secular) as most people who hang around here at Secular Right, I would be eager to support a generous program of subsidies along these lines.

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2 Comments

  1. Hey There Acilius,
    Neat Post, Isn’t car insurance mandated mostly because of the potential health care costs resulting from an accident? So if universal health care passes why do we need car insurance or at least only enough insurance to pay for vehicle damages?
    Great Job!

  2. acilius

     /  March 15, 2012

    Thanks! Good point.

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