The Latest on Fannie Med

The supporters of health care keep denying that the public option will take in taxpayer money or bankrupt other insurance companies.  But the facts keep telling against them.  Some time ago, Florida instituted a “public option” for home insurance and ... well ...

As originally envisioned, Citizens would charge rates above those charged by private insurers, to make Citizens the insurer of last resort.  Nevertheless, Citizens found plenty of customers.

After two bad hurricane seasons in 2004 and 2005 property insurance rates in Florida rose, and in his campaign for the office, current Governor Charlie Crist promised voters that if elected he would see that their property insurance bills “dropped like a rock.”

One tactic he used was to change Citizens’ rate structure so it was competitive with private insurers.  His idea, like President Obama’s idea with health insurance, is that with a public option, private insurers would have to keep their rates in line or risk losing customers to the government insurer.

That’s what’s happened in Florida.  Today about 30% of homeowners’ policies are written by Citizens, which is the largest property insurer in the state.  It’s about to get bigger too.  The largest private insurer, State Farm, had a rate request rejected last year, and now is pulling out of the state altogether (for property insurance; they’ll still insure your car).  As the largest private insurer pulls out over a three-year period (that period negotiated with the state), Citizens will get an even larger share of Florida’s property insurance.

Everybody in Florida knows Citizens is a fiscal time bomb.  Already, every Florida insurance policy (on homes, boats, cars, etc.) pays a surcharge that goes to Citizens, but Citizens still doesn’t have sufficient reserves to weather a major hurricane.  When one comes, Florida taxpayers will be on the hook for the bill.

The legislature knows this, and actually passed a bill last year that would have done a great deal to solve the problem by partially deregulating rates private insurers could charge.  State Farm would have stayed in Florida had that bill taken effect, but it was vetoed by the Governor.  The public option is displacing private insurance.

There’s also Fannie Mae, the public option on mortgages, which just asked for another $5 billion.  And then there’s the analysis of Feldstein, who points out:

Consider: 27 million people are covered by health insurance purchased directly, i.e. outside employer-based plans. The average cost of an insurance policy with family coverage in 2009 is $13,375. A married couple with a median family income of $75,000 who choose not to insure would be subject to a fine of 2.5 percent of that $75,000, or $1,875. So the family would save a net $11,500 by not insuring. If a serious illness occurs—a chronic condition or a condition that requires surgery—they could then buy insurance. Since fewer than one family in four has annual health-care costs that exceed $10,000, the decision to drop coverage looks like a good bet. For a lower-income family, the fine is smaller, and the incentive to be uninsured is even greater.

So let’s see.  Competing with a public option that can be bailed out to the tune of billions of dollars.  Having to insure people who now have a $10,000 per year incentive to wait until they get sick to buy insurance.  The destruction of private insurance can not be the unintended consequence of these policies.  It is the intended consequence.