How Much Do You Trust Your Insurer?

Dennis Haysbert is the actor I remember best for playing the president of the United States in several of the Jack Bauer 24 seasons. You probably know him better as a spokesman for Allstate. In one commercial, he is standing in front of a town that looks like it has been devastated by a tornado. He begins by saying, “It only took two minutes for this town to be destroyed,” and he ends by saying “Are you in good hands?” Allstate also has a “mayhem” series, featuring all kinds of things that can go wrong.

Allstate isn’t alone. Nationwide has a clever commercial in which catastrophe is caused by a Dennis-the-Menace-type kid. In a State Farm ad, a baseball comes through a living room window. Nationwide’s “life comes at you fast” series features all kinds of misadventures. And of course, the Aflac commercials are all about unexpected misery.

A print advertisement I like is sponsored by Chubb. It shows a man fishing in a small boat, with his back turned to a serious hazard. He is about to go over a waterfall that looks like it’s the size of Niagara Falls. Here’s the caption: “Who insures you doesn’t matter. Until it does.”

Now here is my question to you: Have you ever seen a commercial for health insurance that focused on why you actually need health insurance? That is, have you ever seen a health insurance commercial that told you that you need a really good insurer in case you get cancer, heart disease, AIDS, or some other potentially fatal disease that is expensive to treat?

My bet is that you haven’t. In fact, I bet you don’t see many health insurance commercials at all. One place where a lot of people do see health insurance television and print ads, though, is Washington, DC, in the late fall. This is the period of “open season” when federal employees have the opportunity to choose a new health plan. Once a year, members of the Federal Employees Health Benefits Program (FEHBP) can choose among a dozen or more competing health plans. At this time, participating insurers compete to lure new customers, using print and television ads. (For details on its relevance to healthcare reform, see my book Priceless: Curing the Healthcare Crisis.)

Unlike the casualty insurer commercials, however, the health insurance ads are never focused on what can go wrong. They are all focused on what can go right. Instead of picturing victims of cancer or heart disease, they show photos of young families with healthy children. The implicit message: if you look like the family in this photo, we want you.

The contrast could not be more stark. Casualty insurers are trying to sell you insurance based on your need for their product. Their implicit message is: we know you don’t think about insurance until something goes wrong, and that’s when you are going to need us. Health insurers, on the other hand, never even talk about why you might actually need their product—unless by “need” you mean services that healthy people want (wellness checkups, preventive care, exercise facilities, etc.).

So what’s going on?

The short answer is: The casualty insurance market is a real market in which real insurance is bought and sold. The health insurance market, by contrast, is an artificial market in which the product being exchanged is not real insurance at all. To a large extent, it is prepayment for the consumption of healthcare.

In the casualty market, each buyer pays a premium that reflects the expected cost (and risk) that the buyer brings to the insurance pool he is entering. Insurers compete to sell the insurance features of their product because that is what buyers are buying. Federal employees, by contrast, never pay a premium that reflects their expected cost. What they are buying is the opportunity to consume care with other people’s money. As a result, health insurers compete to sell the consumption features of their product, and they are interested in selling only to people who don’t plan to consume very much.