September 22, 2009
Obama's Elusive Auto Insurance AnalogyBy C. Edmund Wright
Team Obama and the media continue to flail away at an auto insurance analogy in an attempt to sell Obama Care. It is almost funny how they seem not to understand even the most basic concept of insurance. Really guys, it's so easy even a caveman can do it.
Perhaps we should show some compassion and give them a break on this. After all, as good liberal elites they might live the limousine / Gulfstream life or the Seinfeld big city walk everywhere life. Who needs auto insurance? Hell, who needs autos? As Senator Kennedy demonstrated, those things can only get you in trouble.
Somewhere along the line though, the D.C.-Manhattan liberal elites were told that the personal auto Neanderthal set in fly-over country is forced by law to have auto insurance. Ahah! A precedent for government mandated insurance. Let's run with it.
And they have tried to run with it. Instead, they have come across as smug yet hopelessly out of touch with reality as they clumsily trotted out the idea that it's not so bad or unusual for the nanny state to mandate insurance. Hey, we make you carry auto insurance. What's the big deal?
Let's start with the premise that government mandates auto insurance in the first place.
Government mandates only a portion of auto insurance. The only auto insurance that is mandated is liability. You do not have to cover yourself or your stuff. You simply have to cover everyone else against damages you and your vehicle might do to them or their stuff.
Now in this debt ridden society, this might come as a shock to many. It has been drummed into us that we have to carry "comprehensive and collision" insurance on our car when we buy, and many assume it is demanded by government.
Not so -- but the discussion opens up some valid comparisons to health care.
Comp/collision is mandated by the owner of your vehicle, likely a bank or leasing company. When you drive your 65 thousand dollar BMW off the lot after putting down your "first and last payment" of about 2 grand, someone else is on the hook for the other 63 K.
And that someone - bank or leasing company -- is who demands that you protect their collateral. This is not a government mandate. It is part of your lease or loan agreement with the bank which is simply a contract made in what we used to call the "free enterprise system."
After all, if you were to total that car two miles down the road, you are not the one to take the big financial hit.
Thus if you own your vehicle free and clear, it is not mandated by any entity that you carry comp/collision. You only have to carry the liability.
So relative to Obama's case, only one portion of auto insurance is mandated by law and it is not the half that has anything to do with protecting the policy owner. (Where is Roe v. Wade privacy when you need it?)
So half of Team Obama's brilliant metaphor caves in right there.
And the other half -- the liability half -- does not apply to health insurance. This analogy would only work if health insurance applied to us injuring or causing others to get sick. Clearly that is not what health insurance does, thus wiping out the other half of the Obama analogy.
This does open up some valid and teachable correlations between auto and health however. They just don't work in favor of Obama Care.
With regard to your own vehicle: if you own it outright and it still has a lot of value, you likely will still choose to insure their vehicle. The reason? It is good risk management and financial planning to pay a few hundred dollars to insure an asset that is worth tens of thousands, because to lose it would be devastating financially. If the vehicle is not worth much -- like say a clunker -- it is not good risk management to insure it.
What? You mean auto insurance is simply a kind of financial planning? I do. Ditto health insurance. This is what all insurance is - financial planning by way of risk management. It is not a right or a moral obligation. It is simply a way to infuse predictability into your cash flow equation. OMG! I thought it was about compassion and children and working families and evil corporations and rights and hope and change and so on.
Nope. Just cold analytical financial planning. And if we would analyze our current debate through that prism, it becomes much easier to grasp -- and the auto metaphor does indeed inform.
As a financial planning maneuver, it makes a lot of sense for you insure yourself against a dread disease that will wipe you out (the way you insure an owned car that is worth a lot of money.) We used to call this "major medical." If you need the 6 or 7 figure heart or cancer treatment, the major medical kicks in and handles it.
Conversely, it is not good financial planning to burden your employer, insurance company, doctors, pharmacy and so on with so much paperwork that your 20 dollar prescription costs 150 dollars -- most of which is to pay for that paperwork so you can get it for 10 dollars on your co-pay. Yet we have come to believe that this is how health insurance should work. Talk about voodoo economics!
It is also instructive to work the analogy backwards. Auto insurance would be totally screwed up if we did it the way we do health insurance. That would make every oil change and tire rotation much more expensive and thus your auto insurance would be much more expensive too for the coverage you really need.
So the applicable analogy is this: health insurance should work like auto insurance in that the coverage should only involve the major medical portion. This is the portion where you might have some "liability" to others such that if you are rushed to the ER and get a few hundred thousand dollars worth of care -- the costs will be shared by others who do pay for insurance or by the providers themselves.
Since we are already paying for that now, Team Obama could easily sell a practical plan to mandate that everyone carry some type of catastrophic coverage or prove that they can pay for any care they need themselves. When you take out all the routine expenses, this coverage would not cost very much.
That is not what the pushers of Obama Care want, however. They want us all to carry coverage that pays for routine visits and runny noses and stubbed toes and so on such that we are all subjects to a huge government bureaucracy and our freedoms are suffocated with paperwork. And they are trying to sell it with the auto analogy. It does not fly.
The government mandated portion of auto insurance does not cover tire changes and wiper fluid replacement and new floor mats - but you can bet that any mandated health care coverage will include just these type of routine issues.
This should be turned around on Team Obama. You want to use the auto example? Fine. Just stick to the major medical expenses. We refuse to pay for your new hubcaps and the paperwork to process the co pay.
This is so easy even a liberal can do it, no offense to cave men. I can't wait til they try the Homeowners insurance analogy.