Auto Insurance Works – So Why Doesn’t Health Insurance

Those looking for solutions to America’s health insurance bills can see a lot to admire in the auto insurance market. Auto coverage purchasers throughout the country have a wide choice of providers, a fair number of different options within those plans, and benefit from vigorous price competition in the market. In states that don’t monkey too much with the auto market even the worst drivers can usually find a private carrier to cover them. All states but New Hampshire, furthermore, have “financial responsibility” — the individual mandate — that requires car owners to have either insurance or another means of paying for any accidents they cause. This last feature, in particular, has attracted praise from Republicans and Democrats alike. If a major health reform bill ends up on President Obama’s desk, indeed, it will almost certainly include such a mandate.

While the auto insurance model has many advantages and lessons for health care reform, at best, it provides only a partial solution for those looking for a better health care system.

To begin with, simply mandating coverage won’t mean that everyone actually gets covered. Countries like Germany, Switzerland, the Netherlands, and Israel that mandate the purchase of insurance from private or quasi-private companies find that not everyone complies even when subsidies, fines, and even criminal penalties come into play. (Massachusetts has had the same experience with its mandatory coverage—about 2.5 percent still don’t have insurance three years after the plan went into effect.) American states, not surprisingly, have had the same experience with their own auto insurance laws: about 13 percent of accidents involve at least one driver without coverage.

In addition, health insurance is a lot more complex and expensive than auto insurance will ever become. Only about 4 percent of drivers ever get into an accident resulting in an injury requiring hospitalization. Everyone, with health insurance, however, will eventually die and likely incur large medical bills in the process.

Government health insurance mandates — many of them set at the state level — also complicate efforts to require health coverage. In the auto insurance realm, most states simply require $100,000 or so in liability coverage for all drivers. No state mandates things like coverage for damage to ones’ own car, temporary rental cars, or towing. But over 2,100 state health coverage mandates force private health plans to include everything from hairpieces to podiatry.

Silly as some mandates are, others appear inevitable so long as the government plays any role at all in defining health insurance. A plan that covers only say, faith healing, probably shouldn’t count as a health insurance for the purpose of subsidies or special tax treatment.

Some problems that plague mandatory auto insurance systems might become even more visible under a mandatory health care regime. While most illegal immigrants don’t have legally registered automobiles, drivers’ licenses, and auto insurance, at least some do. A health care system that relied on subsidies to help the working poor purchase coverage, on the other hand, almost certainly wouldn’t — and shouldn’t — provide these subsidies to those who violate immigration laws. As they are in other systems with mandatory private insurance, illegal immigrants would likely become the bulk of the uninsured.

Any workable health reform plan, in short, probably should borrow some principles from auto insurance. But, without broader reforms, simply imitating auto insurance won’t fix America’s health insurance system.