Insurance Mandates Don't Work

By Jamie Court
Monday, September 21, 2009; 7:24 PM

A cornerstone of President Obama's health-care plan is, as he said in his speech to Congress, "individuals will be required to carry basic insurance, just like most states require you to carry auto insurance." But the tarnished history of such laws shows that making insurance mandatory, and even making it more affordable, does not compel the uninsured to buy it.

In California, the car capital of America, the injustice of mandatory insurance laws sparked one of the great voter revolts of modern history -- and that still didn't solve the uninsured motorist problem. In 1988, the people of California passed Proposition 103, which required auto insurance companies to seek permission through an elected insurance commissioner for premium increases. It created an intervener system that allows members of the public to challenge unnecessary premium hikes. The law also made auto insurance pricing fairer in various ways, including banning ZIP-code based auto insurance.

The Consumer Federation of American reported in 2008 that Proposition 103 had saved Californians $62 billion on their auto insurance. The market is competitive, prices are down, and the number of uninsured motorists has decreased some from pre-Prop 103 levels. Yet in the most competitive auto insurance market in the nation, the uninsured motorist rate is still 18 percent, among the highest. That's true even after California took more punitive measures against uninsured motorists. Stiffer fines, the impounding of cars and the loss of legal rights for uninsured motorist have not significantly impacted the uninsured motorist rate.

Giving consumers more options -- public options, in fact -- seems to make more of a difference. States with extensive public transportation systems tend to have the lowest uninsured motorists rates. Massachusetts has a 1 percent uninsured motorist rate, the lowest. New York's is 5 percent, New Jersey's 8 percent, and Connecticut's 9 percent. New Hampshire, the only state in the nation without a mandatory auto insurance law, has an 11 percent uninsured motorist rate.

If the president must embrace mandatory insurance, his plan should at least include the prior approval, intervener and elected commissioner models that have made auto insurance cheaper. Every state in the nation should be required to have such regulatory components in order to lower health insurance premiums. But even that's not yet on the table in Washington.

Jamie Court is president of Consumer Watchdog, a nonprofit public interest group based in Los Angeles and Washington.

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