February 9 2012
You Don't “Insure” Against the Predictable
Carrie L. Lukas
The Cato Institute's John H. Cochrane makes an important point in the Wall Street Journal today: The mandate that all insurance policies must offer free contraception isn't just an affront to civil liberties and the freedom of religion. It also is a fundamental misunderstanding of how “insurance” is supposed to work.
Insurance is supposed to mean a contract, by which a company pays for large, unanticipated expenses in return for a premium: expenses like your house burning down, your car getting stolen or a big medical bill.
Insurance is a bad idea for small, regular and predictable expenses. There are good reasons that your car insurance company doesn't add $100 per year to your premium and then cover oil changes, and that your health insurance doesn't charge $50 more per year and cover toothpaste. You'd have to fill out mountains of paperwork, the oil-change and toothpaste markets would become much less competitive, and you'd end up spending more.
One of the reasons that health insurance is so often used to cover routine costs – so is in fact a system of pre-payment for medical expenses, rather than a hedge against unforeseen events – is that employer-provided health insurance costs are tax deductible. As Cochrane details, an employee is better off financially if the employer buys $100 more of health care rather than provides $100 more in salary, because the salary is taxed while the health care is not.
Undoubtedly that's part of it. And surely one of the best things policymakers could do to improve the health care system is to change the tax treatment of insurance. At a minimum, those who buy individual insurance should receive the same breaks of those who get insurance from their employers, but from an economic perspective, it would be better to end the tax break on health insurance and lower rates across the board so that people aren't encouraged to over-consume health care.
But as Cochrane notes, there is something else motivating these mandates. Government doesn't trust Americans to spend their own money on the “preventative care” services that bureaucrats believe are best for us. Left to our own devices, many Americans would prefer to use disposable income on other goods and service, rather than health care. So our government overlords, like any good parent, are going to try to coerce us to do otherwise, and declare certain items “free” in hopes that we will eat our health care spinach.
This is pure nanny-state-ism, and with some pretty bad consequences. Beyond just micromanaging the populace, making such services “free” discourages providers from competing on cost and encourages over-consumption.
As we've written before at IWF, it's ridiculous to pretend than any of this is “free.” Someone has to pay. And who is best to decide where we should invest our limited resources? Though elitists in Washington may think otherwise, individual people are. And even if not everyone acts perfectly rationally in terms of investing in their long-term well-being, we are still better off as a society allowing individuals to make their own mistakes than creating a one-size-fits-all government regime.
So, yes, we should want church-affiliated organizations to get a waiver from the free-contraception mandate. We should all get a waiver from such mandates. Beyond that, free Americans should reject this whole notion of government-knows-best planning and seek to return power to the people. A good place to start would be in health care and with the complete repeal of the ObamaCare monstrosity.