WHY HALF MEASURES DON'T WORK

By Michael Kinsley

THERE IS A BASIC DIFFERENCE BETWEEN INSURANCE and socialism. Insurance is protection against risks that are unpredictable for individuals but predictable for a larger group. You don't know whether your house will burn down next year, but we can know roughly how many houses will burn down across the country. This combination of unpredictability in particular and predictability in general is what makes insurance a business.

Socialism goes further. It protects against risks that are predictable even in the individual case. Socialism, of course, is a dirty word. Nevertheless, we all accept, to varying degrees, the desirability of a social safety net, protecting everybody from the worst effects of poverty. We may do this out of a larger sense of life's fickleness, but not out of any concern that we ourselves may be poor next year.

Distilling the unpredictable risks from the predictable ones is why health-insurance companies have those frustrating rules excluding people with "pre-existing conditions" and limiting "portability" (the right to keep your coverage when you move or change jobs). It is perfectly predictable that a person with cancer or AIDS will cost more than a person in present good health. You can insure against the risk of getting a costly disease; you can't insure against the certainty of already having one. Yet these company rules are a reason that millions of Americans don't have health-insurance coverage.

Health care is an area in which most Americans are doubly socialist by instinct. We don't think people should be denied good health care simply because they can't afford it. And we don't think people should be denied the right to pool their health-care costs with others--the essence of insurance--just because their particular costs are predictably high. On the other hand, we reject the Big Government solution to these problems, as symbolized (somewhat unfairly) by President Clinton's health-care plan of 1993. Thus the temptation of this year's leading health-care proposal, jointly sponsored by Republican Senator Nancy Kassebaum and Democratic Senator Edward Kennedy. The 46 co-sponsors cover the ideological spectrum. The nub of the Kassebaum-Kennedy approach is to limit insurance companies' freedom to refuse or drop customers they consider to be bad risks. In other words, it attempts to achieve the goals of socialism through the method of insurance.

Unfortunately, it won't work. Or if it does work, it will produce more Big Government than its sponsors acknowledge. Forcing the currently insured to pool their costs with those now rejected as too expensive will raise premium costs. Senator Kassebaum says 3%; the insurance lobby says, in some cases, up to 30%. As the price goes up, some healthy people will drop their insurance, raising average costs in the remaining pool even further, leading more people to drop out, and so on. More people than now, not fewer, could end up uninsured.

Enforcing these rules on the insurance companies will not be easy, either. After all, you are asking them to take customers they are statistically certain to lose money on. There are myriad subtle and unsubtle ways the companies can attract the good risks and shun the bad ones. The Kassebaum-Kennedy bill contains detailed rules about, for example, when insurance companies will be permitted to go out of business. That's just one taste of the complexities ahead.

This particular bill applies its principle of nondiscrimination only to people leaving a group policy for another group or individual policy. It does not protect people who now have an individual policy, or no insurance at all. And there are no limits on the price insurers may charge customers they are forced to take against their will. As a result, the bill sidesteps some of the pitfalls inherent in trying to stop insurance companies from acting like insurance companies. As a related result, it won't do much good.

No tears need be shed for the health-insurance industry. The insurers say they prefer requiring all employers to supply health insurance to all workers. "Unfortunately," they note primly, "this type of comprehensive reform was rejected." Yes, and whose fault is that? It was the health insurers, with their "Harry and Louise" television commercials, who helped kill comprehensive health-care reform, including employer mandates. This bill will serve them right.

What this bill cannot do is bring us socialism's benefits without socialism's cost. So it is yet another example of America's hunger for the free lunch. And it is a free lunch of a particularly modish sort--the free lunch of moderation. Kassebaum-Kennedy is everything people claim to hunger for in public policy: bipartisan, high-minded, incremental, nonideological. Kennedy has said, "There will be those who say [this bill] goes too far in some areas--and there will be those who say it does not go far enough." This might be called the Baby Bear approach to policymaking: if it's too hot for some and too cool for others, it must be just right. But moderation can mean simply leaving out the unpleasant parts of policy trade-offs. The conservative says: expanding the availability of health care is not worth the cost. The liberal says: yes, it is. The moderate says: do it without the cost. Which is impossible.