Mandatory Insurance

I want to talk in future posts about the management of national social security systems in other countries. As a preliminary to that, I thought I’d make some notes here about another kind of mandatory insurance program we’re quite used to: automotive insurance. Auto insurance is mandated by states, not the federal government, hence there are variations. One state, for instance, New Hampshire, does not require liability insurance. Not that people don’t buy it there, but never mind. It isn’t mandatory. You don’t have to buy it in Virginia either, but if you don’t you owe the state $500 per vehicle per year. Virtually every lender will require collision insurance before it gives you a loan—much like it is impossible to get a mortgage without insuring the house. I present this by way of saying that mandated insurance is nothing new to Americans.

The interesting thing here is that we find this natural, to require property—things, objects, stuff—to be insured, under law. The law says do it, and we write the checks. We can avoid writing the check if we don’t want to own a vehicle (or in some cases get a license to drive) or in owning a house. Otherwise, we must. At the same time we don’t require people to buy health insurance. When they don’t we will still treat them. We haven’t as yet “advanced” to the point on the road to Total Market Savagery of rigidly refusing the injured indigent child or adult from admittance to the hospital. This absence of a mandate does cause property damage, however—to all those who are insured. They ultimately bear the costs. But the cause-effect linkages in the health field are a little more hidden than staring at the totaled car or the burned-down house. When the health problem is the outbreak of an epidemic, having a population portions of which are reluctant to go to the doctor also has a greater health impact…

My point here is that mandatory spending, on the likelihood of unforeseeable events, is an accepted principle. Why? It’s in the common interest. But the mandate isn’t uniform. Is our imagination so limited that we cannot comprehend the functional identity of mishaps to cars and mishaps to bodies? The new health law, if it is ever implemented, does envision mandatory participation and, also, penalties (on the model of Virginia above) for not participating. That sort of thing is also familiar to Americans.

In the realm of pensions, we have another case: mandatory annuities, thus mandatory savings. In this country it takes the form of the social security contribution. Virtually everybody has to work; therefore everybody must contribute. Social security was originally imagined as—indeed named, indeed is still called—a trust fund. But it hasn’t been handled like a genuine trust fund. The contributions function as a tax—and the distributions are a budget item. If those moneys had always been collected and kept separate, rather than becoming yet another source of tax revenue, de facto, social security would not be an issue today. Budget hawks wouldn’t constantly put quotes around the word “entitlements”—thereby suggesting that they are nothing of the kind, just giveaways. When I pay into an annuity I own, I’m not giving the holder of that money any freedom to pay or not to pay, to raise or lower the distribution. No freedom whatever. Some of our legislators are bothered by the obligation actually to pay back to me that which I own. It doesn’t happen that way in other countries, and I’ll write about that in the future. To be sure, better organized and run as those programs are, they cost the citizen a whole lot more.

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