Brandeis and Insurance Reform


I just finished the chapter in Melvin Urofsky’s biography of Brandeis on Brandeis’ creation of Savings Bank Life Insurance.  What I thought would be a dry chapter instead had a number of interesting parallels to today’s fight over health insurance.  Near the start of the 20th century abuses in the life insurance industry were exposed in the press, which spurred activists to reform the industry. What particularly appalled Brandeis was the industry’s exploitation of the poor and working class.  In a time of one income families, insurance agents played upon fears of the death of  the breadwinner, to get people to buy insurance that often ended up  being more expensive than the insurance bought by the upper classes.  Also, because of the vagaries of employment at the time, many families had difficulty making regular payments, which the insurance companies would use as an excuse to cancel the policies and keep all the premiums made.

Brandeis’ solution (in Massachusetts at least) to these abuses was create a state wide system where the poor could buy insurance from local banks. Of course, key to the plan’s implementation was getting the idea passed by the state legislature. Naturally, insurance companies did not like the idea of a rival system and spent vast sums of money trying to defeat the measure.  In their hysteria, they accused Brandeis of being a socialist (sound familiar?) which is ironic because one of Brandeis’ hopes was that the competition from the new system would force the companies to offer fairer and more inexpensive policies — which is exactly what happened.

There is another interesting parallel in this story and one that politicians pushing for heath insurance reform could learn from. Once Brandeis came up with the idea, he did not immediately start trying to get the idea passed by the legislature. Instead he started a pr campaign to get the public enthused about the idea, and then had them start lobbying the politicians. It’s worth quoting the book directly:

“Even if [Brandeis] could have secured passage of the bill immediately, it would not, he believed, be the right way to do it. It was more important to get the education of  ‘those persons who are now savings bank trustees and the wage earners as to the inequity of the present system and the necessity of developing insurance on savings banks lines, than it is to get the necessary legislation. If we should get the tomorrow the necessary legislation, without having achieved that process of education, we could not make a practical working success of the plan.’ ”

In other words, he came up with the plan first, marshaled his support and then brought it all down on the politicians. If only Team Obama would have taken a play from the Brandeis playbook.

BTW, the Savings Bank Life Insurance in Massachusetts is still going strong. They recently celebrated their 100th anniversary by producing the documentary on Brandeis that I have blogged about earlier.

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