I thought I would share a few thoughts on the current controversy concerning insurance mandates, specifically as they relate to contraception. I feel I am very qualified to opine. You see, I spent my life in the insurance sector. As I sometimes joke, I spent a little time in the actuarial offices, I just didn’t inhale. I understand how insurance policies come, and how insurance policies go. And in that experience I’ve come to understand a few points about economics and insurance.
- Insurance is not designed to cover predictable activities. The purpose of insurance is to aggregate risk for unknown events. Insurance companies make bets about how likely a given event will be, and how much it will cost, based on their long term measurements of actual events. This allows them to charge you, the customer who doesn’t know how likely a given event will be, an average cost (plus a nominal profit) for coverage to pay for the unknown event should it occur. If an activity (such as eating, or a woman’s birth control for that matter) is predictable then it should be paid for out of pocket by the individual. It makes no sense to procure that item through insurance.
- Government cost savings calculations are a slippery slope with no intellectually defensible stopping point. The argument being presented for mandating contraception as part of insurance is that it saves money, since the cost of contraception is lower than the cost of pregnancy. The same can be said of food. The cost of feeding an individual for a year can be less than the cost of treating them for starvation (you can feed a person for a year for less than a couple days in the emergency room). So why don’t we mandate that insurance provide three square meals a day?
- Insurance mandates are a two way street. The political factions happy about getting free contraception through government mandate will probably be less happy when different political factions get into power and start mandating that all insurance plans cover firearms purchases. Clearly the cost of a firearm is lower than the cost of treating a person injured after an assault.
In my opinion we will all be happier in the long run if we quit using insurance mandates as a proxy for property redistribution by the government.