David Fud raised a good point in comments yesterday on how we decide to price premiums:
I have to say that I really believe that insurance premium differentiation should broadly apply to risky behaviors. Drive fast with a meter in the car? Higher automobile premiums. Don’t take vaccines? Pay a higher premium. Have a gun? Have to insure it/higher premium/no coverage for gun related health problems.
I realize that these are taboo costs in American society. However, if someone started a pool of folks who were up front about their cheaper behaviors (speeding, guns, vaccines, whatever), you would think it could bifurcate the insurance market between the two risk pools and force the increases indirectly on the more expensive pool.
What he proposes is to use risk-rating and experience rating to price health insurance. This is wicked common in the entire US insurance system.
As a teenager, I was a truly shitty driver, even relative to my peers who, as a class, were shitty drivers. My auto insurance premiums were horrendous. Now that I have not caused a claim to be filed in the past twenty years and I’ve aged into a far less likely to generate claims group, my risk and experience rated car insurance rates are far lower now than in 1998.
Car insurance is a risk and experience rated product. And we, as a society, think that this is just. The economists will argue that this is an efficient allocation as it removes moral hazard where people would engage in destructive or bad behavior if they don’t bear the full costs of bad behavior.
In health insurance, we aren’t often making that same decision that experience and risk rating is just. We, as a society, think that there is a significant component of luck that is randomly distributed that is highly correlated with costs. And if we think that luck matters a lot and that the provision or non-provision of affordable and useful insurance produces lots of suffering that we don’t want to see, then pure risk rating goes out the door. We’ve mostly made the decision as a society that pure risk rating produces bad things in the healthcare setting. So we don’t allow pure risk rating in large group health insurance via HIPAA, we don’t allow risk rating for Medicare or Medicaid except in the sense that very ill individuals may more easily qualify for coverage than healthy, low cost folks, and with the ACA we don’t allow for pure risk rating in fully insured individual and small group markets. We allow pure risk rating in products that fill gaps and live in the cracks between payment systems.
This is a political and social decision.
Going to a broader sense of risk rating in health insurance is a political and moral decision.
It could work.
It could have consequences that we either do or do not want.
At work, smokers have to pay an extra premium for smoking. I don’t know what it is now, but a few years ago, it was $60 per month.
Insurance companies have not suddenly become trustworthy in judgement. We would have to be very specific in when it’s OK. We also have to keep the free market capitalists and think they are Christian cut throats from expanding that into areas we don’t want. I don’t know. If we allow it for say vaccines, it would have to be say a specific amount and pretty much kept the same for all insurers.
it will be litigated on religious freedom grounds too.
I think vaccines should just be mandated on public health grounds period.
Many group coverage plans (like the one for state employees in KS) sponsor “wellness” incentive programs, and give you a discount if you meet some exercise goals and log them into a website. It may not be pure risk rating, but it does result in a two-tier system for insurance premiums based on risk and experience.
@debbie: IIRC, smoking is the only such risk behaviour the ACA allows to be priced into health insurance. I think David was being too gentle. You start with “unvaxxed pay full freight” and you end up with “no pre-existing conditions protections”. We’ve been on that ride, and it was pretty nauseating.
Much better to use other sticks to get people vaxxed. Like, y’know, losing their jobs. Or cut off from the credit card system of payments. 79% of American have credit cards. it should be straightforward to use existing information to infer which of those people are vaxxed.
@Chetan Murthy: Smoking really does have a big impact on all sorts of things. It is why it is treated that way.
But if we start doing this with other things, are we going to charge the person with birth defects as a higher risk? Genetic conditions? There are some very bad things that could happen if you consider people’s risks. There will be risks that do not come from choices that people make.
I’d rather see carrots than sticks.
A gift card for finishing a stop-smoking class (I don’t care if the class has immediate results, I just want to encourage a baby step. Quitting can be a long process).
A small discount on the next premium for a vaccination (Covid, flu, whatever else).
Thats all I have for now but I’m still digesting breakfast.
From what I read, big prizes (looking at you, Ohio Governor DeWine) haven’t seemed to inspired Covid vaccinations but smaller prizes (free food at a street fair) have some effect. Obviously the “stick” of risking catching Covid only works on about half the population.
I agree with Chetan about avoiding the path that could lead to punishing people for the bad luck of pre-existing conditions.
The problem with this is that as you age, you get better at driving (in general) so your risk goes down and you get lower cost insurance. Healthcare doesn’t work that way. One foolish decision as a 20-something and you’re in high risk forever with no way to join the low-risk group.
Had a couple of one night stands and caught HIV? Even if you’re celibate for the rest of your life, you’re doomed. Smoked for a couple of years to hang with the “cool” kids? You’ll always be labeled as a former smoker, with the concurrent higher risk of cancer. And so on.
I just don’t see a way to fairly enforce “risk” for healthcare. There are some simple things, like vaccines, where it’s basically a choice one makes to be high or low risk for some disease but the majority of healthcare doesn’t follow that pattern.
Driving insurance rates are risk rated – but based on data that is not intrusively collected (tickets issued, accident and police reports, for example).
Risk-rating in health insurance might start out that way (as noted, factoring in things like driving record and vax history) but would quickly become incredibly intrusive. Like Chetan Murphy said, we would soon be back to the bad old days of rescission based on going through patients’ daily lives with a fine-toothed comb.
One of those ideas that makes sense at first look, but only at first look.
There are very good reasons to take health insurance away from market forces. We did this many decades ago in Canada and we recognise that it’s far far better this way. There are other ways to make people who engage in risky behaviours pay for them.
I’m guessing you grew up in New England.
an efficient allocation as it removes moral hazard where people would engage in destructive or bad behavior if they don’t bear the full costs of bad behavior.
This, I think, shows that economists need to get out more. It may reduce moral hazard but it certainly doesn’t remove it and people don’t bear the full cost of their bad behavior
@CaseyL: not completely.
They are broad brushed that take in everyone. Live in wrong zip code, higher premiums. Not married, higher premiums, wrong age higher premiums. Low credit score, higher premiums. There are lots of things in car insurance that have nothing to do with my driving ability.
As others have noted, it may be okay to charge higher premiums due to risky behavior that people can easily modify, but not for states of being or health issues over which a person has little control.
Also, we have as a society discouraged smoking to reduce the number of people who ever start smoking. I don’t know if we take into account that it is more difficult for the addicted remainder to give up the habit.
Some may want to consider giving a break to those who exercise or take weight reduction classes. But not everyone can afford gym memberships or take the time to go to classes even if offered.
But charge more to unvaxxed and anti vaxx? Hell yes!
@Albatrossity: Is there any evidence that Wellness programs actually work for the reasons they are said to be used? Otherwise it’s a way for your employer to get you to give them HIPAA protected individual health data.
Hello all, thanks for entertaining my point. I see these as limited carve outs, but obviously there is fear of a slippery slope. I think allowing people to be gun humpers but they pay more for the risks involved is perfectly fair. I think that allowing people to be anti-vaxxers that get to pay for their own hospital stay is perfectly fair.
I do realize this would cause a lot of teeth gnashing, but at least it would stop the free-ridership and tolerance of stupidly risky behavior that we are unwilling to challenge legally. Maybe it is me feeling punitive against these folks. I don’t know. But at the end of the day, I am tired of our society bearing the risks of their chosen behaviors. An end run on the Constitution to fix gun massacres and pandemics seems like a good idea to me, given there will be no change in the Constitution to fix these problems.
Gotta say, nothing will get the holy-rolling vax resistant assholes in Pimplebutt, Arkansas on board with single-payer like matching their insurance premiums to their health care decisions.
Me too, but even registration by itself is a heavy lift.
@David Fud: Oh, I agree with you! I would LOVE to see gun humpers, anti-vaxxers, and other enormous public health menaces pay for the damage they cause.
The devil, as always, is in the details – and in the knowledge based on experience that some insurers can and will abuse the information they’ve been given.
Just spit-balling here, but it seems to me that one could argue that even treating smoking as a special category in health insurance can be problematic. Since heath care is so important, and everyone will need it from birth until death, it is only logical that everyone be in the same system. If there are things that adversely impact healthcare costs (like smoking or eating 5000 calorie burgers) that have no societal benefit (unlike having children), then tax it directly and severely.
Once someone is getting care, it shouldn’t matter if one needs a heart/lung transplant because of smoking or because of COVID or a genetic defect. The need for the care is the same; the early intervention should try to discourage the discourageable bad behavior as directly as possible.
You want to smoke 3 packs a day of unfiltered Camel Menthols? Here you go! The tax is $250 per pack. (There are TBD details on how to do this for things that are illegal, like smoking meth…)
We don’t have and probably never will have a single health system that covers everyone. (There’s a good reason for the VA to be separate; Medicare (unlike Medicaid) probably doesn’t need to cover pre-natal; etc.) And taxes can’t cover everything that we should be discouraging…
There’s no good reason you can’t have a single health payer system, and there are lots of good reasons to get one.
There may be, as you say, no good reason not to have one, but there are a lot of actual and hard to overcome obstacles in the path to getting there.
@polyorchnid octopunch: Life is complicated.
E.g. UK NHS and MoD:
Different subgroups of the population have different needs and are often served better by different organizational structures. It may ultimately be paid for by using the same giant pot of money, of course.
@Starfish: The simple solution is to charge higher premiums only for things the insurees can change. Then there is no problem with penalizing people for birth defects, unfortunate genetics, etc. Refusing vaccination should be at the top of penalizable behaviors. It’s way easier to fix than smoking, which we have no issue penalizing.
This is also why God created the black market.
But I agree that a punitive tax would cause many to really try to kick the habit and discourage new smokers.
Is the vaping market still going strong?
ETA. Semi related note. In California the illegal cannabis market persists because taxes on legal cannabis are excessive and it is often easier to buy the product from an illegal vendor than from legal store. The illegal market is well established.
Yep. The slippery slope argument is much more convincing when we’ve experienced the bottom and the pain of climbing up. Punching holes in ACA weakens its fabric and makes it that much easier to punch the next hole. Before you know it, the whole thing unravels and you’re left with nothing. Do Not Want.
@Roger Moore: I agree on the punching holes in ACA argument. I spent 8 years uninsured because of a two month gap in coverage between jobs that there was nothing I could do to prevent. I had warning. I applied. Insurance company sat on my application. That was their business model and the govt let them do it.
The anti-vaxxers will be way over their coverage limits anyway. Covid treatment is long term and very expensive. They don’t think about this stuff because they don’t think they will need it. Let the market punish them and leave the rest of us with our hard fought for pre-existing coverage.
Aren’t there some states with no-fault insurance?
What Have the Romans Ever Done for Us?
@Fair Economist: There’s limits to that too though. Like, I could change my exposure to sunlight and reduce my likelihood of getting skin cancer…or I could not. Plus my risk is already baked in (mostly) by behavior in my youth (1970s and 80s) when people viewed a good deep summer tan as pretty much essential proof that you’d had a good summer. Nobody even talked about skin cancer back then.
Fast forward and there’s a lot of emerging research that ultraviolet rays do far more to promote health than just generate vitamin D…most of the cardiovascular risks they thought were associated with low vitamin D levels are actually, it turns out, associated with other chemical reactions in the skin caused by UV radiation – predominantly the formation of nitric oxide, which is an important vasodilator. They are finding that all cause mortality is lower for people with regular UV exposure than for those who avoid sun exposure to the max extent possible. The people in the second group are less likely to die of skin cancer but more likely to die of cardiovascular issues, and those on average kill a lot more people. So as the research evolved they may have charged me more for years for something under my behavioral control that actually may have lowered my overall mortality risk, which is an incredibly perverse incentive. There’s still a lot of unknowns in medicine and saying behavior X increases your risk of adverse health outcomes, well, it is that simple for smoking or using a gun but there are lot of other behaviors that are far more ambiguous.
Other things in this category include consuming high fat foods (for a couple decades there that was considered a risk for CV disease now not so much – or at least it’s far more complicated than previously thought) or drinking alcohol in moderation (they’re still debating whether or not it has health benefits).
The big thing with healthcare is that it’s not just about foolish decisions. There are lots of health events we have essentially no control over that can permanently make us high risk, like congenital birth defects, type 1 diabetes, or being the victim of a violent crime, and a bunch more where there’s both a behavioral component and an involuntary component, like type 2 diabetes. We really, really don’t want to be in a situation where we have to adjudicate exactly which conditions “deserve” to be used for determining rates and which ones don’t.
In the past few days, it’s started to seem to me as if the vaccination issue is going to take care of itself. Want to work for an increasing number of major corporations? Show proof of vaccination. Work for the feds? Show proof. Go to various entertainments? Show proof. Once the vaccine is approved for children under 12, schools will just add it to the list of vaccines children are required to have to attend school. The unvaxxed can scream about their rights, as more and more doors are shut to them, but eventually, they’ll get tired of home schooling their kids and hiring the vaccine equivalent of a shabbat goy to go into the package store for them to buy their booze, and they’ll get the shots. They’ll whine about it, but they’ll get the shots.
I REALLY do not want to live in a society where the insurance companies can make judgments about your weight!
What Have the Romans Ever Done for Us?
I don’t really have a problem with gun owners maiming themselves and getting treated under their health insurance policies…seems the pain of the self maim should be a reasonable deterrent (although, apparently not). I do think we should require every gun owner to carry an umbrella liability insurance policy that would pay out up to the value of a statistical life for every bullet in the gun. So if you have a 6 bullet clip that’s $60 million in insurance (The USDOT’s current VSL estimate is roughly $10 million per life). It’s an imperfect solution because money is not going to make a person maimed or killed by your accidental discharge or psychotic behavior (or their families) completely whole but it’s as close as society can come to ensuring that we at least get close to making people whole.
Something like that could apply to anti-vaxxers – look at the R value for the disease and the mortality rate and charge them a liability insurance premium for anyone they might infect based on average health outcomes/damage for someone infected with the disease. Point being the stupid shit you do to yourself should be punishment enough for you personally but we should make it so we at least nod in the direction of making any collateral damage – sickened or dead people – caused by your stupidity whole.
@Brachiator: I don’t care if smokers want to smoke, as long as they have to do it outside. It will most likely kill them eventually. I don’t want the whole Obamacare structure we have worked so hard to establish whittled away to punish stupid people. Lung cancer and COPD will do that.
My mom smoked since she was eighteen and died at 84 from non-smoking causes. My dad’s little sister died at 53 from smoking related causes.
That’s not how no fault insurance works. No fault insurance is about determining who pays for damages in an event of an accident. In a jurisdiction with at fault insurance, the insurance of the party at fault has to pay; in a no fault jurisdiction, the injured party’s insurer pays regardless of who caused the accident. But that’s a completely separate issue from determining how much the driver pays for their insurance. If you cause an accident in a no fault jurisdiction, your insurer can still increase your rate after the accident because they think it means you’re a bad risk.
@What Have the Romans Ever Done for Us?:
For something to be effective as a deterrent, people have to believe it could happen to them. If they can convince themselves it won’t, you can crank up the consequences as high as you like and it won’t affect their behavior. This is why people are careless with guns around their children, even though a dead child is one of the worst consequences imaginable: they just don’t believe it could ever be their child who kills themself with a gun.
Even if they believe it, it won’t matter to some of them. I recall seeing a guy on television once who’d interviewed a woman whose son had died by gunshot. Years ago, her brother was also killed by a gun. (One had been suicide and the other an accident, but I forget which was which.) The fellow asked her if these events made her think twice about having a gun in the house. She gasped and replied, “Not have a gun in the house? I wouldn’t feel SAFE!” So, to recap – to protect herself from the miniscule chance of the famous ‘home invasion’, something that has never happened to her and probably never would, she keeps in her house the same type of implement that had already, in her own life, killed her brother and her son.
J R in WV
Actually, lots of those holy-rollers would just drop their health insurance… Jesus will watch out for them! And look at all the money they will save!!
“Maw, I can buy me a Harley with the money we save by dropping that crummy insurance, AND we won’t have to listen to no more phone calls about the Durn Vaccines!”
Just guessing here, but that’s my bet.
What Have the Romans Ever Done for Us?
@Roger Moore: That’s a valid point but I’m guessing that if they have to talk to an insurance agent who tells them that if anyone is killed with that gun, even by accident, they owe $10 million and we’re asking for premiums to offset the potential risk of having to pay out that amount, it would get them to focus more on the possibility. But even if not the premiums would be a significant financial deterrent for a lot of gun owners.
traffic tickets are a poor way to determine car insurance risk. The “broken taillight” is the canonical “violation” used to harass minority drivers.
ever notice how wealthy white areas always seem to reject traffic cameras that are popular in basically every other country?
@billcinsd: Not much evidence that wellness programs are effective, as far as I can tell. But the one I was referring to is basically exercise-monitoring; no medical test results (blood pressure, lipid profile, etc) are requested, and I don’t think those sorts of data are HIPAA-protected. Here’s a relevant read, courtesy of the Google machine.