A Better Conversation Needed About Paternalism and Health Insurance

Americans have reacted angrily the past couple of days after many have found out that their health insurance plans have been cancelled due to Obamacare. These are plans in the non-group market which comprises about 5% of Americans and do not live up to the minimum standard of coverage that the Affordable Care Act requires. Any plan that existed before 2010 was grandfathered in, but insurers could not continue selling these plans after the law passed. Thus, while Obamacare did not force insurers to change their plans, it offered a strong incentive for them to do so. Millions of Americans around the country are now receiving notices that their plan has been cancelled.

This is contrast to President Obama’s often repeated line that if you like your health plan, you can keep it. This was a complete lie and Americans are rightly furious at him for it. Many liberals have responded to this by arguing that the new plans will offer more comprehensive coverage that will be less expensive for many people, especially when the subsidies are factored in. It will only be a select few that truly have to pay more – and Obama never denied that there would be some losers from health reform.

This argument is exactly correct, but it hides a larger disagreement that lurks beneath the surface and which conservatives have jumped on. By increasing the standards that health insurers must live up to, Obama has decided what constitutes adequate insurance for Americans. He limited their choices by outlawing plans that do not meet those standards. Worse, the president lied about it. He told Americans if they liked their insurance, they could keep it, but in reality, Americans can keep their insurance only if Obama deems it satisfactory. In 2009 and 2010, Americans would never have supported such an open case of paternalism and limitations on consumer choice. This lie was critical in the passage of the Affordable Care Act.

The revelation of this lie has created a lot of anger and finger-pointing from the right. This is entirely justifiable, but that anger will fade as time passes. Americans will finally log on to the federal exchange, see their options are not that bad and be even happier when they factor in the subsidies. Obama knows this anger will pass. The more important question is whether this paternalism is appropriate for the health care sector.

A fundamental problem with health insurance is that people have a difficulty predicting their expected future costs when the risk of catastrophe is low. They choose plans with high deductibles, high out-of-pocket limits and low monthly premiums. These plans may cover limited services and have no lifetime cap. It leaves people open to huge financial risk, but it’s tough for people to take that risk into account when the odds of it are so low, particularly for people who haven’t had to deal with many medical issues.

Think about it this way: the whole point of health insurance is to provide a safety net if something goes wrong. After all, it’s insurance. That means that if nothing goes wrong (i.e. you’re healthy), health insurance won’t save you money. However, if something does go wrong, the opposite is true. That’s why people value health insurance so much. However, having insurance that provides minimum benefits and does not prevent financial catastrophe doesn’t do that. It still leaves you open to financial ruin. That’s not the point of insurance. Many Americans have plans like that though. These are the plans that Obama is looking to effectively eliminate with the new regulations in Obamacare.

The law forces insurers to cover 10 essential health benefits, limits out-of-pocket expenses and bans lifetime caps. All of these rules are there to ensure that a severe injury or illness will not lead to a financial catastrophe as well. These requirements raise the price of coverage, but this is partially offset by the subsidies.

Conservatives may not approve of these regulations, but they have not addressed them in their arguments the past couple of days. Here is the Daily Caller’s Matt Lewis:

The proles were happy with inferior plans. They were too stupid to know what’s good for them. Obama’s lie was necessary in order to bring about the greater good for the most people. The ends justify the means.

For those looking to draw grander conclusions, this is a teachable moment. The hubris necessary for this kind of vast undertaking — impacting nearly 20 percent of the economy! — is  patently unconservative. And I don’t need to trot out some fire-breathing or controversial conservative to demonstrate why this sort of chutzpah is a fundamental affront to basic conservative philosophy.

It’s fine to consider paternalism in general as an “affront to basic conservative philosophy.” The problem is that this sweeping generalization prevents Lewis from evaluating whether this instance of paternalism is justified.

Now, some on the right adhere strictly to a philosophy that freedom of choice is important to a person’s welfare than the welfare-improving effects of any paternalistic policy. Motorcycle helmets may save lives, but the welfare lost by requiring them – and thus the restriction on freedom – is more important. I respect this view, but I don’t subscribe to it. If that is your opinion, then nothing I can say after “Obamacare is a paternalistic law” will convince you that it’s justified.

But if you are open to the idea that paternalism has it’s place in the government, then simply declaring that the law represents a unique form of hubris due to its paternalistic features is not enough. You must explain why it is beyond the level of paternalism that you deem acceptable. This is the stage that conservatives have not tackled yet. They have crucified the president for setting minimum health insurance standards for Americans, but have yet to demonstrate why this is bad.

Why should insurers be able to impose lifetime caps or set exceedingly high limits on out-of-pocket expenses? Why shouldn’t they have to cover hospitalization? Should Americans be able to purchase insurance that leaves them open to financial ruin?

Smart conservatives differ on these questions and have ideas to address them, but the arguments so far have centered on the fact that any paternalism in the law is unacceptable. That generalization does nothing to answer those questions. It’s time to break out of that limited mindset and address the actual issues.


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