Some months back, we had a totally random guest speaker at church who mentioned in passing how Obama’s health care plan would fine people who didn’t have health insurance. “You need to be informed,” she said, expressing outrage at the proposal.

That comment really bothered me, because to me, it actually demonstrated that she wasn’t informed about the health care plan at all. It’s true that there will be fines if you don’t have insurance. But you have to understand why.

First, the problem. Millions of people don’t have health insurance. Maybe you think that’s OK. I don’t. Tens of thousands of preventable deaths occur each year simply because people lack insurance. More than half of all the individual bankruptcies in the U.S. are due to health costs. It’s a terrible problem that the U.S. alone of all the rich countries in the world has.

Certain conservatives believe that a market based system would work best to rectify this situation. Competition leads to lower costs, which makes health insurance more affordable for everyone. It’s a great idea in theory. In practice, it doesn’t work.

What actually happens in our market based system is that insurers are incentivized to deny coverage (or make it exorbitantly expensive) for those who are already sick or have pre-existing conditions. And this practice is widespread in the health insurance industry. I don’t blame them. Given the current rules, it makes complete sense to do that to keep costs down. But a system where you’re insured only as long as you don’t get sick isn’t really insurance. It’s only marginally better than having no insurance at all, and borderline immoral.

So why not just ban discrimination based on medical history? That’s a necessary step, but not sufficient. Insurance in general only works if many people have it and most of them don’t need to use a lot of it. By works, I mean a system that’s affordable. Home insurance is reasonable because a lot of people have it and most people don’t end up using it. The ones that don’t use it subsidize those that do and the system works. In areas where not a lot of people have insurance, or people are likely to use it, insurance is expensive, often prohibitively so. Earthquake insurance is crazy expensive for some combination of those reasons.

In particular, health insurance can only be affordable for most people if almost everyone has it. The healthy subsidize the sick, just like with other forms of insurance. If a lot of people don’t have it, it becomes too expensive, because the healthy will tend to choose to not have it, so all that’s left are the sick. That drives up the cost of insurance, and leads to a vicious cycle where more of the healthy drop their insurance because it’s too expensive, leading to higher insurance costs because those that remain are mostly sick, and so forth.

This isn’t just theoretical, it’s exactly what’s happening in California. Paul Krugman describes the situation well. One of the largest providers of individual health insurance in California increased their insurance rates by up to 39% this year. Why? Healthy people have been dropping their coverage because of the recession. Since those that are left are sicker, the average cost per person goes up, and the insurers have to raise their rates. Leading to more people dropping their insurance. The death cycle. California has very little regulation and a huge market, which should theoretically lead to market competitiveness. But it’s not enough to keep the cost of insurance affordable. As long as health insurance is optional, there’s no way out of this problem. Market based competition has empirically failed in this state.

The only solution is to make sure almost everyone has insurance. I haven’t hidden the fact that I’m in favor of a single-payer plan, but many people are philosophically against it. So the other option is to force coverage on people, for example by requiring all but the smallest businesses to require coverage, assisting those who can’t afford it to buy it, and assessing fines on individuals that can afford it and don’t have it. And that’s exactly what the proposed health care plan does.

So those are the choices. You can choose to live with what we have now, where millions (increasing daily) are uninsured. You can go with a version of a single-payer system. But if you insist on a market-based system, you have to have a system that requires most people to have insurance.

And that’s why her comment bothered me. Without understanding, fining people for not having insurance sounds kind of evil. But really, it’s the only way to make a market-based system affordable. There are plenty of legitimate reasons to oppose this particular health care plan that many people have elucidated. But rejecting it simply because it includes fines on the uninsured doesn’t make a ton of sense. You need to be informed.

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