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Saturday, October 10, 2015
Insurance as a kind of tax, and a foray into socialism and outside my area of expertise
My recent posts here and here on cases addressing flood insurance under the National Flood Insurance Program got me thinking about the similarities and differences between insurance and taxes.
As we all know, taxes are one of the two things in life that are certain, and insurance is not the other thing. But -- sometimes insurance is required by the government. Flood insurance, for one, if you have a mortgage and live in a flood zone. Health insurance, in Massachusetts and soon nationally for the most part. (Don't start calling me with health insurance disputes -- I don't do those. They are different from liability insurance disputes.) Worker's comp insurance, generally. Car insurance. A fee the government requires you to pay sounds like a tax to me.
Insurance is a for-profit private-sector business. But in the case of flood insurance, the insurers are merely the plan administrators, with the losses paid by the government. In other words, the government itself is the insurer.
Taxpayers are a larger risk pool than insureds. Even if only 53 percent of Americans pay income taxes (I take no position on that), that's a whole lot of people and it makes it pretty easy to spread the risk. Then again, according to my Google search 95 percent of Americans own cars, and therefore buy car insurance in states where it is required. The insurance risk pool is subdivided, however, into insureds of each insurer.
My taxes are based, more or less, on my income. My insurance premiums may or may not be based on my level of risk. My auto premiums are based on where I live, the kind of car I drive, and my driving record. But my health insurance premiums are not based on the likelihood that I'll get sick -- everyone with my plan pays the same. That means that, like with taxes, healthy people are subsidizing health care for people who need more of it. It seems to me that, given that reality, it would make more sense to spread the risk more broadly -- among all taxpayers. That way who is subsidizing who is not based on the almost accidental decision of what health plan you happen to have, but on what you can afford to pay. (And, yeah, I know, that's socialism.)
