Thursday's Supreme Court decision, which validated the Obama administration's mandate for individuals to purchase insurance by defining it as a tax, has already been chewed over ad nauseam. But amid the analysis, hype, and fear-mongering, it's worth stepping back a moment and looking at the broader context.
The ruling shines a spotlight on a larger issue. The smooth functioning of many of our vital economic systems requires its participants to carry a form of insurance. In fact, as we go through our professional and personal lives, we are frequently forced, or highly encouraged, to purchase insurance for one reason or another.
Consider the many commercial systems that rely on universal insurance — or near universal insurance — to function properly. As a general rule, banks and other mortgage lenders require that people taking out loans to buy homes also have home insurance. That makes sense. Banks may be stupid, but they're sufficiently intelligent to avoid lending big sums of cash to people whose ability to repay the debt could be seriously hampered in the event of a fire, or a flood, or a tree falling on the roof. Lenders also frequently require borrowers to purchase a title insurance policy on the property. The rationale? They don't want to lend money on assets that could be encumbered by the fact that, say, a third party has a legitimate ownership claim on it.
In commercial construction, lenders routinely require that contractors and construction managers carry liability insurance, and forms of financial insurance. Before they commit funds, these lenders want to be sure that the companies will have the wherewithal to complete the project. Lawyers will find it difficult to drum up business unless they carry liability insurance.
How about the massive shipping and logistics industry? Last week, a Russian ship thought to be carrying weapons to Syria turned back and was unable to complete its journey. It didn't turn back because of diplomatic pressure. Rather, the vessel turned around because its insurance had been canceled. When you're floating valuable stuff over great distances on the open ocean, it turns out that the parties involved often require that the journey be insured.
Insurance 'mandates' like this extend beyond pure commerce. In addition to requiring that drivers obtain and pay for licenses, states also require drivers to obtain and pay for car insurance. In this instance, the state doesn't have much interest in being protected from the prospect of a driver damaging his own car. But people who get behind the wheel of heavy, motor-propelled machines have a great ability to inflict financial harm on property, and on their fellow citizens. Legislators have generally decided that a car insurance mandate helps protect innocent victims and property owners from the dangers inherent in our driving system. If someone falls asleep at the wheel and crashes his pick-up truck into your storefront, insurance will pay for part or most of the damage. The mandate for car insurance has done little to impede the growth of the auto industry.
The institutions and people who oversee commercial systems understand that when participants don't have insurance, it exposes every participant, and thus the system as a whole, to all sorts of damage and risks. In many instances, those risks can be so debilitating that they'll keep people from engaging in commerce. If movers didn't carry insurance, people would be far less likely to trust their valuables to moving companies.
So what does this have to do with health insurance?
Because of the way our system is set up, people have the ability to inflict financial damage on others in health care when they lack insurance. American hospitals don't turn away people who show up at emergency rooms. And the vast health care system is one in which hospitals and providers tend to give care first and then try to collect payment later. When the system winds up providing free care to people, or is unable to collect on bills it sends out, the costs have to be made up elsewhere. In the first quarter of 2012, hospital giant HCA reported that it made a provision of $794 million for doubtful accounts. Overall, the company had $9.2 billion in revenues. Could the company you work at stand to write off 8.6 percent of its revenues every year as uncollectable because customers can't pay? Health-care providers look to make up for these losses by paying employees less, or by charging higher fees to those who can pay (i.e. the insured). In other words, the cost of providing care to the uninsured is already socialized throughout the system and the economy. It's just not being socialized among those who are not insured. That was then-Governor Mitt Romney's rationale for mandating coverage in Massachusetts. If we're all going to wind up paying for the services used by the uninsured, we should force them to kick in.
Seen in this light, the mandate — which turns out to be a tax on those who choose not to buy insurance — is not some radical departure from existing practice. It's part of a broad continuum. It may be a burden, but it's just one more of a series of insurance-related burdens throughout the economy.
Daniel Gross is economics editor at Yahoo! Finance
Follow him on Twitter @grossdm; email him at grossdaniel11@yahoo.com