Obama vs. the Insurers: A Cautionary Tale from the Sunshine State

Here’s the problem: a likeable and determined elected official takes on an unpopular industry where people are crying out for help because they can’t get insurance, even at skyrocketing rates.

Here’s the solution: create a government-run insurer that will provide “last resort” policies for people who can’t get coverage any other way and back it up with government resources. Would it work?

No, this isn’t President Obama’s health care plan. Instead it’s Florida Gov. Charlie Crist’s effort to protect the state’s homeowners from property insurers who were doubling rates every time a hurricane hit.

That plan is slowly fading to black. While there are distinct differences between Obama’s and Crist’s visions, there are also parallels. The biggest one: when you bite insurers, they bite back.

Crist’s plan drew jeers from insurers nationwide when he put the state into the insurance business. Florida’s state-owned company, Citizens Property, at one time insured a quarter of the state’s homeowners. And if a hurricane hit? No problem. The state would have a $32 billion fund to pay off claims.

Florida was lucky enough to duck hurricanes, but it couldn’t duck the credit crunch. Crist couldn’t find the $32 billion and rating agencies such as Standard & Poor’s have hinted that they might downgrade Florida’s credit rating.

Then Crist tangled with the nation’s largest homeowner insurance company. In January State Farm said that it would leave Florida. The governor, known for being blunt, responded, “Good riddance.”

But statewide policyholders and legislators, who had previously urged Crist on, now joined the other side. A series of pro-insurance bills passed and then landed on the governor’s desk, including “the State Farm Bill.” This bill would not only encourage the giant insurer to come back, but would enable it to raise or lower rates almost at will, allowing it to wipe out the smaller insurers that had taken its place.

State Farm, famous for hardball tactics, has been playing Crist like a harp as he tries to reach a decision on whether to sign the bill by the June 27 deadline. In the latest move, State Farm sent Crist a letter saying it would be “willing to re-examine its options” if he signs it, virtually putting pen to paper for him. Crist, who announced that he wants to run for U.S. Senate on the Republican ticket, may realize that this is his best option.

What should this tell Obama? First, if you propose something to replace the current insurance system, you better have a way to pay for it. And second, insurers have a lot of muscle and they’re not afraid to use it. Maybe Obama should ask Hillary Clinton to tell him the story of “Harry and Louise.”