Monday, May 25, 2009

Desperately Seeking Health Insurance

I spent the weekend in rural New Hampshire, and had occasion to talk with a friend about his elusive quest for affordable health insurance.

My friend has worked hard all his adult life. He is self employed. Shortly before his 60th birthday he had a joint replacement. When he went to renew his health insurance for himself and his wife he was told that his monthly premium would double - from $1,200/month (bad enough) to $2,400/month (impossible). If he took coverage with a $10,000 family deductible he could keep the premium at $1,200/month. He was told that the 100% rate hike was due to having had a joint replacement prior to turning 60.

In our market-based health system self-employed people seeking insurance as individuals are up the creek. The basic nature of insurance requires companies to assess the risk they are taking on. If I chose to go uninsured until I am diagnosed with cancer it's fair to make me pay a hefty premium to make up for all the years I didn't contribute to the insurance pool. But what about my friend in New Hampshire?

It could be that an actuarial algorithm predicts that a person who has had a joint replacement before 60 becomes twice as risky to insure. But even if that's the case my friend has not been a free rider - he's been paying his part of the insurance pool year after year. A system that requires him to double his payment because of the treatment he needed is unjust, even if the insurance company and its actuarial practices are on the up and up.

Even if every insurer used actuarially fair methods to estimate risk it's simply wrong for individuals to have to pay more for their insurance because of their health status if they have maintained their insurance over time and were not simply waiting until a need for care arose. But I'm afraid that as our national discussion of health reform proceeds we'll fall into our familiar pattern of blaming individuals for not "putting enough skin into the game" or insurers for greed and profiteering.

Individuals and insurers both misbehave, but it's our system itself that's mistreating my friend. If we - the body politic - allow it to continue as it is, we'll have to point the finger of blame at ourselves.


eric said...

Same thing happens with auto insurance and homeowner's. As you've said before, insurance is a misnomer when it comes to health. Disease is inevitable for all of us, regardless of our good habits and choice of parents.

Jim Sabin said...

Hi Eric -

Thanks for the comment. It's always good to hear from you!

If I drive recklessley and cause accidents it seems entirely fair that I should have to pay a hefty premium for auto insurance. If I live in a city with lots of auto thefts paying more also seems fair. (After all - I and my fellow citizens could hire more police to prevent car heists.)

But our opportunity to control our health status is not the same. If I smoke, paying a high tobacco tax so that all smokers contribute to offsetting the costs smoking generates for society is the way to go, not waiting until I get cancer to slap the cost penalty onto me.



eric said...

"Sugar, rum and tobacco are commodities which are nowhere necessaries of life, which are become objects of almost universal consumption, and which are therefore extremely proper subjects of taxation.” — Adam Smith

Jim Sabin said...

As we know from Ecclesiastes - "The thing that hath been, it is that which shall be; and that which is done is that which shall be done: and there is no new thing under the sun."