What’s Obamacare got to do with car insurance?

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In a recent piece on Slate.com, former New York Governor Eliot Spitzer calls a pair of South Carolina politicians “hypocritical” for, on the one hand, criticizing Obamacare’s individual health insurance mandate while, on the other, doing nothing to end the state’s auto insurance mandate. Whether South Carolina should end the auto insurance mandate is a question worth debating. For now, though, it’s enough to point out that the difference between (a) paying into a “system” to cover the risks of driving a car and (b) a comprehensive health insurance plan can be summed up in a single word.

That word is liability.

Liability insurance is categorically different from the comprehensive insurance mandated by the new health care reform law. Auto liability insurance covers two major categories: property damage to another person’s property (in this case, a vehicle) and medical costs incurred by another person caused by the policyholder. In either case, liability insurance ensures that damaged property is paid for “by” the insured person responsible for the accident. Uninsured Motorists Coverage, like liability coverage, is also strictly limited in scope and cost.

Health insurance simply can’t be compared to liability insurance. Auto insurance is voluntary (you can elect not to drive), and health insurance is involuntary (you can’t elect not to live). Poor health, moreover, isn’t something for which “fault” or responsibility can be assigned, as it typically is in car accidents. Auto liability insurance premiums are based on how much risk you pose as a driver: those who pose higher risks – young people, DUIs, people with poor driving records – pay higher premiums. Unlike automobile liability insurance, the federal law’s individual health insurance mandate does not accomplish the goal of having people who pose a higher risk pay premiums that reflect the expected cost differential.

Finally, Obamacare’s individual insurance mandate comes paired with an all-encompassing minimum coverage requirement that’s virtually guaranteed to drive up the cost of both insurance premiums and all of the expenses they cover, including routine doctor’s visits, psychiatric care, and prescription drugs. Insurance coverage (indeed any third-party payment system, including Medicaid) has significant cost-increasing effects on the price of services and research into expanding health care costs indicates that medical expenses covered by insurance rose in price far more rapidly than those not covered by a third party.

Of course, liability isn’t the only kind of auto insurance available. Consumers can, if they wish, purchase collision coverage and comprehensive coverage, which cover whatever damage happens to their own vehicle that isn’t the result of an accident with another driver. Comprehensive coverage isn’t about paying for the damage you might do to other people, but making sure whatever auto repair or medical procedures you have to provide for yourself won’t bankrupt you or your family.

Simply put, when consumers pay for services directly, and not through a third party like an insurance company or the government, costs can remain competitive. A liability-only insurance mandate allows for this, and a comprehensive coverage mandate does not.

The individual mandate to purchase the kind of health insurance defined by the federal government as “comprehensive” is destructive enough to the market in its own right. Unfortunately, the individual mandate – despite all the attention it receives – is far from the only harmful “reform” to be introduced by the Patient Protection and Affordable Care Act. In the coming weeks we’ll walk you through many of them in our research on the Health Exchange system, a cornerstone of the new federal law through which most of its new policies will be enforced.

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