Politics & Policy

Apartment Fires and Health Insurance

(Photo: Ifeelstock/Dreamstime)
Different Americans calculate risk–cost ratios in different ways. The Cruz amendment gives them a choice.

Three people have died in a condominium fire in Honolulu. It was their fault.

The fire almost certainly would have been contained with no loss of life and minimal damage to property if the building had had a modern sprinkler system installed. It didn’t. The building did not have a sprinkler system installed because the residents, through their condominium association, had rejected a proposal to install sprinklers and had lobbied against being required to install them by the local authorities.

The reason, as you might expect, was cost: Estimates for the installation ran around $4,300 per unit. That sounds like a lot of money, but it represents about 1 percent of the price of a lower-end condo at the building in question, and quite a bit less than 1 percent of the price of a more expensive unit. What’s an extra seven-tenths of 1 percent of the price of a home in exchange for the peace of mind that would come with a reliable fire-sprinkler system? How can it be that residents not only voted against the proposal — “voting against their own interests,” as our progressive friends like to put it — but actively lobbied against measures that would have made them, their families, and their property (probably the largest investment for most of the residents) safer?

Ask a general contractor about that.

One of the problems for democratic governance in a large and complex society such as ours is that different people have radically different tolerances for different types of risk. Some people smoke even though they know better, and some people fail to save money even though they know they should. To make things more complicated, different people take different attitudes toward different categories of risk: Some of those smokers are conscientious savers with excellent, paid-up insurance policies; some of those non-smokers eat organic foods and do yoga but don’t have any medical insurance or savings, probably because they are broke from all those expensive yoga sessions and pricey hippie chow. Some people own both Volvos and motorcycles.

Behind all of these risk calculations are inevitable economic trade-offs, which your local home-builder or professional renovator could tell you a great deal about. Let’s say you have come down to the last $10,000 in your home-renovation budget — how do you spend it? Do you invest an extra $10,000 on insulating your attic and crawl space to make your home more energy-efficient, or do you calculate that you can happily pay the extra $18 a month on your electric bill and skip the insulation in favor of getting those marble countertops your wife really wants? Do you spend the extra $10,000 on converting your garage into a super-cool man cave, or do you spend it on fire safety and home security? Do you put an extra $10,000 into the master-bathroom renovation or do you put it into your IRA?

Different people will come to different conclusions, each for his own reason. Why don’t people invest more in insulation and less in Carrara marble? Probably because energy is relatively cheap, and because insulation doesn’t make your house look cool even if it helps keep it literally cool. And if talking with your general contractor doesn’t convince you that people can be a little unpredictable when calculating these kinds of trade-offs, have a conversation with your insurance agent next. Possibly owing to the fact that we do not like thinking about unpleasant eventualities, we tend to under-insure ourselves against certain kinds of risk (like long-term disability) even as we over-insure ourselves against things that aren’t even insurable risks in the first place: A great deal of what’s wrong with our health-care system is the result of trying to “insure” against ordinary, recurring costs such as preventative check-ups and routine care.

A great deal of what’s wrong with our health-care system is the result of trying to ‘insure’ against ordinary, recurring costs such as preventative check-ups and routine care.

Of course, the people who lost their homes and their loved ones in the Honolulu fire probably would go back and make different decisions if they knew how things were going to turn out. But we do not know how things are going to turn out. That is why we have insurance, and why we invest in other risk-mitigation products. Nobody wants to hear the burglar alarm going off, no one wants to have to use a shotgun in self-defense with the kids sleeping in the next room, no one wants to have to make use of that supplemental long-term hospitalization policy, and (almost) no one wants to collect that $1 million spousal life-insurance benefit. No one wants to pay for the sprinklers, and no one wants them to go off, either. But in all of these cases, you are sure as heck glad that those things are there when you need them.

Here is something that needs saying before we continue: What happened in Honolulu is not the result of lax regulation. The regulation of commercial and residential buildings in the United States is an avis very rara indeed: a regulatory and bureaucratic success story. The International Building Code and the related International Residential Code may be slightly misnamed (they are not really all that “international,” though they are used in a few places outside the United States), but they provide an example of what regulation really ought to look like and how it ought to be developed. The IBC and IRC are model codes, meaning that they are produced by a large and diverse group of builders, engineers, architects, building inspectors, fire marshals, elected officials, materials scientists, professional associations, etc., working through a membership association that has no actual power to enforce them. But because the codes are widely regarded as intelligent and effective, they are adopted as the basis for local building codes around the country and in some overseas jurisdictions, such as Colombia and the United Arab Emirates. A new model code is promulgated every three years, and local political authorities have the choice whether to adopt the new code, keep the existing one, or (the most common case) to adopt the new code with some modifications to reflect local conditions. Some places may decide, for example, to grandfather in older buildings without fire sprinklers, and others may decide to require retrofitting. Hawaii went one way, and Florida, with its large inventory of condominiums, went another — imposing large costs on some residents.

The quality of American building codes can be judged from the fact that we build our cities out of flammable materials but they do not burn down. Whereas European structures are much more likely to rely on such non-flammable materials as stone and cast concrete, American buildings typically employ frame-based methods, meaning that they contain a great deal of wood and other flammable materials. But how they are built matters as much as (and probably more than) the choice of building materials. If the Grenfell Tower in London had been built to U.S. code — with the appropriate sprinklers and exits — then there probably would have been few, if any, casualties, even though a similar American building probably would contain more flammable materials. Design and execution matter: That’s why an earthquake that would kill tens of thousands of people in Bangladesh results in minor damage and little or no loss of life in California.

Unless it doesn’t.

Social scientists talk about the difference between ’stated preferences’ and ‘revealed preferences,’ i.e., the difference between what people say they want and what they choose when asked to invest their own resources.

Though they are built to different standards, modern buildings in California and in Japan are among the world’s best when it comes to earthquake endurance, but they are nonetheless built with an eye to only a certain limited range of seismic disturbance. It is perfectly possible that, the day after tomorrow, Los Angeles or Tokyo could be hit with an earthquake far more powerful than what their buildings are designed to withstand. In 2011, Japan endured an earthquake hitting 9 on the Richter scale, the most powerful earthquake in its history and the fourth-most powerful ever recorded. There were nearly 16,000 deaths, though almost all of them — about 92 percent — were drowning deaths from the associated tsunami rather than deaths from earthquake-associated building failures. California, for its part, requires that buildings take into account a seismic timeline of a few thousand years, meaning that buildings are designed to withstand the worst earthquake that is likely to happen in the next couple of thousand years. Why build on a timeline that far exceeds the life expectancy of modern buildings? That, too, is a form of risk mitigation: We do not, in fact, have very good data about the size of earthquakes before we began measuring them just over a hundred years ago. What would happen in Los Angeles if the city were to endure an earthquake the size of the 2011 Japan temblor? A 2013 study suggested that about 1 percent of the buildings in Los Angeles would collapse, and that a large number of them — maybe half — would become uninhabitable or unusable. But, of course, there’s more than building collapse to consider: Much of California’s water infrastructure relies on relatively brittle concrete likely to fail in the event of a powerful earthquake, and even buildings that do not collapse contain many non-structural elements, such as light fixtures and windows, that can fall and cause serious injury or death even if the building itself survives the earthquake.

Could we use regulation to ensure that California’s buildings are more earthquake-resistant than they are today? Of course. Could we use regulation to ensure that every light fixture and air-conditioning duct within those buildings is five times as earthquake-resistant as it is today? Yes.

At a price.

Social scientists talk about the difference between “stated preferences” and “revealed preferences,” i.e., the difference between what people say they want and what they actually choose when asked to invest their own resources. Consider the case of television: Everybody says they want more in-depth journalism, more serious and thoughtful discussion on cable-news shows, and more highbrow programming, but what everybody actually watches is porn and the Sean Hannity show. Those Honolulu condo dwellers knew what they were doing when they refused to retrofit their homes with sprinklers: They were saving themselves a few thousand dollars. Maybe they wanted that money for a vacation or a nicer car. Maybe they desperately needed it for medical care. In retrospect, it is easy to say that they made the wrong choice. But did they make bad choices? Given that we cannot know every individual circumstance — a hungry child, an unexpected medical crisis — it is difficult to put ourselves into the position of choosing for them.

But, of course, that is a great deal of what government does. Sometimes, it does that relatively well, as in the case of our building codes. Sometimes, it does that truly badly, as in the cases of our ill-conceived efforts at health-care reform, the so-called war on drugs, many of our government-run schools, “economic development” programs that end up being nothing more than corporate welfare, and much else.

There is an inevitable element of paternalism at work: We give poor people food stamps rather than cash in no small part because we believe that they cannot be trusted to make the right decisions with their money — and it is not as though we believe that for no good reason. We require people to send their children to public schools because we do not believe that all of them can be trusted to see to their own children’s education. And under the thinking common to both the grievously misnamed Affordable Care Act and most Republican alternatives to it, we mandate that people buy health insurance and that insurance companies pay for preexisting conditions for the same reason: We do not think that our friends and neighbors will make the right decisions if left to their own devices.

The problem for health insurance is the same as the problem for condominium sprinklers: The benefits are desirable, but they are not free, and many people, given a choice, would spend their money in a different fashion. In the matter of health insurance, Senator Ted Cruz has offered an amendment that would allow insurers to sell relatively low-cost plans that do not cover everything that must be covered under current ACA regulations. Critics, including Senator Susan Collins, have protested that these policies are too “skimpy,” that they do not include all of the coverage and benefits that we might like to see people have. But all the Cruz amendment does is give buyers a choice. The danger isn’t that insurance companies will fail to offer more expensive and comprehensive policies — of course they will offer them; those are more profitable — but that many Americans will prefer less expensive and less comprehensive health-insurance plans.

The libertarians among us will argue, not without good reason, that Americans should be free to decide for themselves what kinds of risk they are willing to bear, and to choose for themselves. Others, thinking about those fiery deaths in Honolulu — or about the number of lottery tickets sold every day, or the number of cigarettes sold to many of the same people, or the enduring popularity of reality television — may not be so sure. And the realistic among us, right or left, know that as with the status quo ante, we are not going to allow Americans to die or to suffer horribly because of treatable illnesses or common injuries — even if those are the result of their own stupid and short-sighted decisions. We know that some of those costs are going to be shared irrespective of whether Republican or Democratic health-care policies prevail.

We do not expect the politicians to be very honest about this in public, but if we expect to create policies that have a chance of achieving what we want them to achieve, then we have to be honest with ourselves, at least. Among other things, that means acknowledging that what many Americans really want is less expensive health insurance — and that well-meaning reformers mean to deny them that. There is an important political assumption embedded in the acceptance of that model: that while different Americans calculate risk–cost ratios in different ways, on these questions some Americans — or some class of Americans — are entitled to prevail. In considering that, we ought to keep in mind that it is all too easy to tell people with great assurance that they should invest in better insulation and fire sprinklers instead of granite countertops when you yourself can afford both.


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