On Insurance Mandates

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.

  1. 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.
  2. 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?
  3. 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.

Taking Credit

Aside from the quality escape that the legend on the bottom of the video is mismatched from the labels on the Y-axis, this video is a little surprising to me:

President Obama appears to be taking credit for the increase in oil production over the last three years. Yet here is candidate Obama in 2008 explaining that it takes 10 years for oil drilling efforts to take effect (actually probably closer to 5):

It is misleading to point out that domestic oil production is up under the Obama administration, as the groundwork for the increase was clearly laid many years ago. I’m not aware of any specific actions the administration has taken in the last three years that would lead to increased production.

Congressional Groupon

I guess just about everyone has heard about Groupon by now but if you haven’t let me summarize: A “group coupon” is established where a certain number of people have to commit to buy before the coupon reaches the “tipping point”. If that point is reached then everyone buys. If that point is not reached then everyone gets their money back. The model solves the problem where a retailer can give a good price if and only if he/she sells a large quantity.

I want to apply this model to Congress. Right now just about everyone knows we need to cut federal spending, but nobody wants to be the guy or gal to actually do it. If a district elects a fiscally conservative representative they will likely fail to bring home their district’s fair share of pork barrel spending as they “unilaterally” vote to cut spending while all the other representatives vote to continue the practice. It only benefits the district to elect a fiscal conservative if a sufficient number of other districts do the same thing. So, I propose that we setup a “Congressional Groupon” where candidates running for office will pledge to vote to cut spending if and only if a majority of candidates from other districts make the same pledge (and are elected). If all of the candidates making the pledge are elected, such that they hold a majority in Congress, then the “tipping point” has been reached and they all vote to enact the spending cuts as pledged. Everyone shares in the pain. If they do not achieve the tipping point then none of the candidates are held to their promise and may all pursue continued deficit spending to benefit their districts.

It is impossible to enact spending cuts in a vacuum. If we can get a majority signed up for the Congressional Groupon then the voters in their districts can be confident in voting for fiscal conservatives without disproportionately hurting themselves.