America's New Endowment

Synopsis for the tight of schedule:
Universal health insurance is America's new endowment. Give it a few years. People will cry "Nazi" at those who would repeal healthcare reform, something you'll have to pry from their cold, post-death panel hands.

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The endowment effect (or divestiture effect) is the phenomenon by which someone values something more once he secures the right to it. This is not some fringe attitude, but a fundamental aspect of human nature proven by controlled experiment.

When I was in business school (and was reading about business school...in a book) my professor demonstrated the endowment effect with a little experiment (albeit an unscientific one). The students in one of her negotiations classes were presented with the hypothetical situation of owning a coffee mug and coming up with the lowest price at which they'd sell it. The students in her other class were presented with the same coffee mug and were asked to name the highest price at which they'd buy it. The students who were given the premise of coffee mug ownership ended up with an average price roughly twice that of the students who were prospective buyers.

The endowment effect can help explain why people are so averse to change. The underpinning of the endowment effect is loss aversion. If something new is proposed (like healthcare reform) we are so often afraid of losing the good parts of the status quo. While this is a perfectly rational reaction to proposed change, one must consider the possibility that we are mistaken in our personal cost-benefit analysis.

Take, for example, your choice of search engine. If you are with the 90% majority of Internet users, you use Google 90% of the time. Let's say that Microsoft's Bing became 10% better than Google. Would anyone notice? Would anyone care? Even if someone did care, would he switch to Google? Research has shown that it often takes people a perceived increase in value AND lower cost to switch to a new product or a competing brand. So, why would someone care enough to break his habits for a marginal increase in benefit, especially when such a benefit has not been proven? Most people won't bend over backwards to change the status quo unless they can perceive increase in benefits at less of a cost. As far as I can tell, Google.com and Bing.com are roughly equally easy to type into the address bar. Add to it the fact that Google is the default search engine for more Web sites and browsers, and it's apparent that the cost of using Bing is hardly lower than sticking with trusty Google. (OK, smartypants, you could say that Bing's cashback program could make Bing less costly for some consumers, but that only applies to people who partake in certain e-commerce transactions.)

So, even if Bing is 10% better overall than Google (which is an entirely hypothetical situation), people are unlikely to switch to it in large numbers.

The healthcare bill has faced similar challenges running up to its passing late this evening. While it's not my intention to tally up the costs and benefits of the new legislation, I will say this:

The American people will generally feel better about the new healthcare bill after it is put in place.

I believe this to be true for reasons beyond personal ones that have to do with human solidarity and all that mushy rubbish.

Reason #1: People don't like the way insurance companies sometimes deny valid claims and deny coverage altogether. Even if you have only dealt with honorable organizations to date, you won't want to expose yourself to the possibility of experiencing health insurance nightmares.

Reason #2: People who have insurance now will realize that someday they might not be so lucky.

This second reason strikes at the heart of the issue. Most Americans have health insurance, and many of these people are afraid of messing with the status quo. These people will rightly say, "why fix something that isn't broken?" This is a natural reaction, and is the main reason why popular support of healthcare reform isn't quite as robust as it might be--or will be in the future. But once universal insurance coverage is mandated, more and more people will realize as they change jobs--or get fired from their current ones--that guaranteed health coverage might just come in handy. Yes, even YOU may need it someday.

To wrap up, most people fail to see any direct personal benefit or personal cost reduction from the new healthcare bill. For this reason, many insured Americans have dragged their feet on supporting health care reform. However, once healthcare reforms are put in place, many of these same people who were torn between reform and the status quo will realize many of the indirect benefits and potential personal benefits of proposed reforms. This is where the endowment effect kicks in. Universal insurance is now America's new endowment, and She will sick Her death panels on anyone who threatens to take it away.