Monday, September 15, 2008

Mandated Coverage Lesson

One approach towards guaranteeing "universal coverage" is to require insurance companies to sell policies to all comers, regardless of medical history. But states that have already attempted that find that they can't evade economic realities:
A few states began requiring insurers to take on all comers in the 1990s after a run at national health insurance failed during the Clinton administration.

South Dakota enacted the guarantee mandate in 1995. By 2001, claims exceeded the premiums collected by $2 million. By 2003, the state was down to only three major insurers; one, American Family Insurance Group, notified state officials that it was about to leave, too.

"We regret having to take this step, but the losses incurred on our individual major medical products in South Dakota are unacceptable," wrote Jack C. Salzwedel, a company vice president, in April 2003. "Most of our losses are directly attributable to the basic and standard policies that we are forced to write."
The South Dakota state legislature eventually decided to repeal the coverage mandate.

Insurance companies create value by offering a financial service to customers that allows them to spread the risk of rare but expensive adverse events, such as a major illness or accident. They have the right to sell their policies on any terms they wish based on their own judgment as to what's in their best interest as a business. Similarly, customers have the right to decide whether to purchase those policies (or not) based on their own judgment as to what's in their best interest as individuals. Customers cannot demand guaranteed health insurance, regardless of the cost to insurers.

With these sorts of mandated coverage systems, either the government must force private companies to run at a loss, or it must impose additional taxes to pay the additional expenses, creating in effect yet another government welfare program. Either approach violates individual rights, just in different ways.

It's about time our politicians learn this lesson.