Florida’s Public Option
By Randall Holcombe on Oct 29, 2009 in Disaster Management, Economics, Government subsidies, Healthcare, Insurance, Nationalization, Politics, Regulation, The State
As Congress debates the merits of the “public option” for health insurance, we might look at Florida for some experience, because Florida has had a public option for years, not for health insurance but for property insurance.
After Hurricane Andrew hit Florida in 1992 some Floridians were having difficulty purchasing homeowners’ insurance. (The reason: rates are regulated, and at the regulated rates some properties are too great a risk.) So, the state government formed Citizens Property Insurance Corporation, which is owned and operated by the State of Florida.
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.
In Florida, the public option has meant a substantial socialization of insurance, subsidization of the public option by those who take a private option, and the creation of a fiscally-unsound public insurance company despite the subsidy. Now, we have an opportunity to do the same thing at the national level with health insurance. The results have not been good in Florida, and everyone in Florida knows it. Why would it be any different at the national level?
I yelled at my TV while clueless Pelosi joyfully announced the latest version of Obamacare. It didn’t do any good.
jenkinsbrigade | Oct 29, 2009 | Reply
Citizens only has about 17% of the market, and assessments for Citizens only appear on property insurance policies at this point… A change was made after 2005 which would place future assessments by Citizens on all insurance policies.
Fact Check | Oct 30, 2009 | Reply
Thanks for checking on this, Fact Check. Seeing your comment I tried to verify it with a Google search. This editorial says by the end of 2009 Citizens will have more than a quarter of the market, and 1.6 million policies. Could you post a link to verify your number?
As for assessments for Citizens only appearing on property insurance policies at this point, I know that’s wrong, because I live in Florida and the Citizens assessment appears on all my insurance policies. Not only does the Citizens assessment appear on my automobile policies, I’m fortunate enough to own an airplane, and the Citizens assessment appears on my aircraft policy as well.
Randall Holcombe | Oct 31, 2009 | Reply
I think there are some good points here but the analogy missed a key point of the public option/socialized medicine.
The idea behind socialized medicine is that right now people, because of behavioral biases, ignorance and tax incentives, spend too much on health care. If the government technocrats could decide then they could lower the amount of GDP put into health care and free up lots of money to spend on more worthwhile things (like big T.V. and Disney World tickets). I know this violates the lump sum principle but I think it is a decent argument.
It sounds like a tough pill to swallow but I believe it and I think a lot of other people do implicitly. You can avoid biting a bullet because if we don’t want to lower current spending we have to say the current system of spending 15+% of health care is socially optimal which sounds nuts too.
Steve | Oct 31, 2009 | Reply
We agree on the problem, Steve, but not the solution.
Couldn’t the same argument be made for food? Because of behavioral biases, ignorance and tax incentives (in most states groceries are exempt from sales tax) people are overeating (resulting in an obesity epidemic), and are making poor nutritional choices. So, we need to socialize food production. Just as socialized food production in the Soviet Union after its formation, and in China during the Great Leap Forward, kept Russians and Chinese from overeating (in both cases millions starved to death), socialized medicine would keep Americans from overconsuming health care.
If people made their own choices about health care, they might make some bad ones, but they would have an incentive to do what’s best for themselves. We need more market incentives in health care, not less.
We should do away with the tax-deductibility of employer-provided health care (I like the idea of giving everyone a refundable tax credit instead, but since this was in McCain’s platform it’s got a zero probability of happening; sure McCain lost, but he might have had one or two good ideas anyway), removing mandates on what insurance must cover, allowing purchase of health insurance across state lines, and encouraging people to buy high-deductible policies so they are spending their own money, not the insurance company’s.
I believe that if we moved toward a more market-oriented structure, people would choose higher-deductible policies on their own, as they do with other insurance. Nobody buys auto insurance that covers oil changes and tire replacement, for example.
Your comment and my response hit on one important feature in health care reform. While everyone thinks there are problems in the system, everybody has different ideas about what the best solutions are. Some people favor very little government involvement; others favor government provision; and of course, the continuum between the extremes is filled with other ideas. The result is, while everybody wants health care reform, nobody will like the result once it is passed.
Randall Holcombe | Nov 1, 2009 | Reply
Great Post Randall. I know at least ONE person enamored with the Florida system… and he’s the CEO of a reinsurance company. Why would that be? If a major hurricane threatens South Florida he’ll re-insure a significant share of the risk for Citizen’s, at very inflated rates…because remember, the price controls are only at the retail level, what Citizens pays for reinsurance is totally unregulated.
Crist has two unpleasant options. One is allow the hurricane to come and bankrupt the state, the second is pay a reinsurer ridiculous rates.
gofasterplease | Nov 3, 2009 | Reply
This is why Charlie crist is sliding in the polls lately. He says one thing and does the other.
He criticized Obama for his healthcare plan calling it “cockamamie,” a word that should not be used by a grown man in the role of Governor. But Crist seems to forget that the very ideas about Govt run health insurance that he criticized Obama for are the same ideas he put into play in trying to “fix” the property insurance market. They don”t work.
Crist is a poll watcher, and if he wasn’t running for US Senate, he would be behind Obama’s healthcare plan just like he supported the stimulus package.
So, that means you can’t believe what Charlie Crist says and there is no way we should send him to Washington.
Vote Rubio.
Guido | Nov 3, 2009 | Reply
I thought Citizens worked well for me. After the “cane” that went thru the peace Rivee a couple of years ago, Nationwide Ins. Co. arbitrarily canceled the policies of 40,000 accounts in Sarasota County to limit exposure. Faced with a huge increase by private insurers, my agent got me into Citizens at just a slightly higher rate than I had been paying. After no more than 1-2 years I now have a private insurer with lower rates than ever. Seems like it worked for me and is why I like the public option for health care.
Jim Bradkey | Nov 19, 2009 | Reply
It does seem like the public plan is coming sooner rather than later… it’s just a matter of time now. One of the suggestions that I have read about and really do like is to let all the States democratically vote for or against the public plan. I don’t know if the public option would be feasible enough in that case but it sounds promising as the economic conditions of all states are not on equal standing and the same solution might not be suitable for all. Another argument that supports this view is that each state has a tendency to fall on a particular side so, for example, if FL votes that they want to stick with the private insurance they would be more responsible in making it work by getting what they want. They could also allow private insurance providers to cross boundaries into other states that opt for the private option. Might not be the perfect solution but it seems more viable to test both options out rather than completely overhauling the health care insurance industry.
Sidd @ Insurance License | Jan 8, 2010 | Reply