My new automobile insurance card arrived in the mail recently. My old card was made of sturdy plastic. The new card was made of paper. As I turned the card over in my hands, hoping that the lightweight construction was not a harbinger of thinner coverage, something caught my eye that made me stop and think. On the back of the card was a code referring to “uninsured motorist” protection. A portion of my auto insurance premium covers me in the event that I am involved in an accident caused by a driver who has no insurance of their own. I live in one of 48 states that require drivers to have insurance, so why does my premium still include a component to provide protection from uninsured motorists?
I answered my own question by remembering that in recent years both my wife and daughter had their cars hit by people who were driving without insurance. While penalties vary by state, it turns out that where we live, if you are caught driving without insurance you are subject to a $500 fine, which is about half of the cost of carrying insurance for one year. Assuming that you are not worried about the potential liability arising from an accident, the penalty for not purchasing insurance seems insufficient to prompt compliance with the law. Even before the Republicans repealed the individual mandate from the insurance exchanges, health care had its own version of the uninsured motorist dilemma.
With a few clicks on the federal healthcare.gov website, the tough choices facing middle class Americans became apparent. Pretending to be a 45-year-old with a spouse, two children and a household income of $75,000, I discovered that I qualified for a monthly tax credit of $447, which would reduce the premium for my health insurance. Choosing the least expensive Blue Cross Blue Shield “Bronze” HMO, my premium after the subsidy would be $465.53 per month. My annual family deductible would be $14,700. Once the deductible was met, I would be responsible for 50% of the cost of seeing a doctor. Between the subsidized premium and the deductible, I would pay $20,280 before coverage took effect, after which I would pay half of the cost of seeing a doctor. If my household income was more than $101,400, I received no subsidy. In that case, my monthly premium for the HMO with a $14,700 deductible was $912.04. The penalty for not buying insurance – which has been eliminated – would have been $1,875.
A recent Bloomberg article followed a number of middle-class families who had struggled with the decision to go without health insurance but who in the end concluded that they just couldn’t afford it. One couple with no children whose household income was $127,000 – too high to qualify for a federal subsidy – faced monthly premiums of $1,800 for coverage that included a $5,000 deductible. The premium was three times their monthly mortgage payment and they would be more than $30,000 out-of-pocket before any benefits became payable. “We’re not poor people,” they said, “but we can’t afford health insurance.” In another family, the parents and a healthy son went without insurance so that they could afford an individual policy for their 9-year-old daughter who was born with a congenital heart defect.
Health care, and by extension health insurance, has become unaffordable for many middle class families. Premiums approaching $1,000 per month, and deductibles that expose them to potential bankruptcy before benefits begin, create scenarios in which having insurance is hardly better than being without it. More and more families, faced with no-win financial alternatives, are reluctantly choosing to take their chances without insurance.
If someone backs into your car in a parking lot, crushes your fender, then gets out and says they have no insurance, your initial response is likely anger. We expect drivers to carry insurance. Driving is elective; if you cannot afford insurance, don’t drive the car. Illness, by contrast, is not elective. If I genuinely cannot afford health insurance, what should I do? Insurance only works when virtually everyone buys it. If healthy individuals opt out of a voluntary market, insurance does not work … in the same way that I cannot drive my car into a tree and then call State Farm to buy an insurance policy.
The majority of health care spending is paid for by the working population, whether in the form of their own insurance premiums and out-of-pocket expenses or taxes to fund government programs that provide premium subsidies to lower wage earners in the individual exchanges. Care rendered to the uninsured is paid for through a combination of taxes and higher premiums for those with insurance, much like uninsured motorist coverage in auto insurance.
As younger generations wrestle with the challenges of financing health care, it should come as no surprise if the current Byzantine system of cross-subsidizations and the inflationary effects of selection bias draw unflattering attention. To a generation less interested in owning a car than in having a ride when and where they want to go, the concept of uninsured motorists is likely to seem antiquated. Health care may come to be seen as more appropriately treated as a public utility rather than a competitive industry. My grandchildren may not carry insurance cards – auto or health care – in their wallets … for that matter, they may not carry wallets at all.
