Should You Care Whether I’m Insured?

Published December 13, 2011

Do you really care whether I have health insurance? Some people seem to care a lot. They want to force me to buy it.

What about other types of insurance? Do you care whether I have life insurance or disability insurance? How about homeowner’s insurance? Or whether my car is insured against collision damage or your car is covered should I run into you? What about retirement insurance, such as a pension or retirement savings?

There are undoubtedly those who would like to run everyone else’s life. But as a society we generally don’t force people to insure to protect their own assets. However, we do care about individual risks that could create spillover costs for other people.

Through Social Security, we force people to pay for life insurance benefitting dependent children who could potentially become destitute and wards of the state. All but three states force people to have auto liability insurance—but no state requires casualty insurance covering one’s own car. Although your mortgage company may care, we don’t care whether you insure your own home—but you are forced to contribute to retirement and disability schemes to prevent your accidental dependency on the rest of us. 

Costs Shifted to Others

If you examine these anecdotes closely, they reveal an underlying principle: government typically intervenes in those insurance markets where people’s choice to insure or not insure imposes potential costs on others. When people don’t insure for retirement, disability, etc., society is going to step in and help (where help is needed) anyway.

Implicitly, we have a social contract that socializes the downside of certain risks. If we allow the upside to be left to individual choice, we will have privatized the gains and socialized the losses. When people don’t bear the social cost of their risk-taking, they will take more risks than they would otherwise.

Another way to think about the problem is in terms of the opportunity to become a free rider on other peoples’ generosity. Consider the person who has no life insurance (for dependent children), no disability insurance, and no retirement savings program. Because he is not paying premiums or saving for retirement, he can consume all of his income and enjoy a higher standard of living than his cohorts. But if any unforeseen events occur—he dies too early, becomes disabled, reaches retirement with no assets—he is counting on everyone else to help. 

Most Uninsured Already Paying

How does this apply to health care? If we are concerned the uninsured will impose costs on the rest of us, there is a simple remedy. Impose upon them a fine equal to the expected cost of any unpaid medical bills they might occur.

The full-time uninsured get about $1,500 per person in free care, on the average. Note, however, that uninsured middle-income families are already paying higher taxes (in the range of $1,500) because they do not have the tax subsidized insurance their neighbors probably have.

Far from being free riders, these families appear to be paying their own way. Of course, the extra taxes the uninsured pay tend to go to Washington, DC, while uncompensated care tends to be delivered locally. This mismatch of revenue and expense is not caused by the uninsured, however. It is the result of government not having its act together. 

Why Should You Care?

This argument becomes weaker the lower a household’s income. People who cannot afford health insurance anyway are not willful free riders. They are not making choices that impose new costs on others. So there is no obvious social reason to force them to insure. 

They will need health care from time to time, however. What is the best way to get health care to people with low incomes and few assets? The answer is not Medicaid. Nor is it SCHIP. Nor is it any other system inappropriately modeled on the “insurance” approach to health care.

Bottom line: we should coordinate government revenue and expenses for the uninsured, and it’s not at all clear why you should care whether I have health insurance.