Thursday, March 11, 2010

HR 2555...The Secret Health Care Bill?

HR 2555, the Homeowners' Defense Act of 2009, seeks to establish a federally backed risk pool for catastrophe exposed states.  The bill's sponsors (from Florida!) allege it will save money at the same time addressing the exorbitant insurance costs in several states.  Here's a summary.  This idea sucks...unless you live in Florida.  They think the market lacks risk pooling.  They're wrong.  The market, in Florida at least, lacks sense.

For most people, homeowner's insurance reflects unexpected events: accidental fire, theft.   For catastrophe prone areas, homeowners insurance reflects expected events with unknown timing.  Your homeowner's insurance on the coast in Florida must reflect the fact that your house will very likely be destroyed prior to the end it's useful life.  You may not live there, but your insurance company must prudently evaluate that risk, and reflect it in your price.

You feel ripped-off when you pay for another person's disaster.  The logical alternatives are: (a) live somewhere else where you don't have that risk, or (b) build your house such that it cannot be destroyed by all but the most severe disaster.  In fact, the latter solution makes lots of sense because it substantially reduces the aggregate risk of the system, but it does make for very expensive construction.  But, that's the point, isn't it??  That incremental construction cost reflects the true risk, just like the exorbitant insurance premiums on shoddy houses.

So what the heck does this have to do with health care?  I'm 40, in reasonably good health.  My life expectancy probably exceeds 40 years.  However, we know almost for certain that the last two years of my life will cost more than $200k in today's dollars.  More or less, only sudden death prevents that expense.  That's a known expense at an unknown later date.  I'm my own house in Florida! 

Florida has made virtually every mistake in the book to monkey with their insurance markets to keep premiums down, potentially bankrupt the state, and find sneaky ways to unload the risk of their beautiful beaches on those of us who don't benefit from them.  Don't let them do it again.

But, also look closely.  Florida's screwed up insurance markets at least partially look the way they do because the residents of Florida won't face up to the reality that unknown timing of known expenses makes for incredible insurance problems.  They face a generation's worth of our national health care insurance problems every hurricane season.

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