The next step is "health insurance" (as we call it in the US, though it's in actuality no such thing) carriers mining your credit card and loyalty program data and hiking your rates if their model predicts you're going to need more or more expensive care.
The problem is that unhealthy lifestyles (drinking, smoking, fast food, &c) are disproportionately found among the lower socioeconomic strata, creating yet another penalty for being poor.
The funny thing is that the insurance industry is obsoleting itself.
If they perfectly assess risk, your annual premium will just be your annual cost plus all of the administrative costs of insurance, so just self-insure. We're getting closer and closer to that, further eliminating any value that anyone gets from insurance.
If they perfectly assess risk, your annual premium will just be your annual cost plus all of the administrative costs of insurance
Uhh, no. That's not how insurance works.
The idea of insurance is pooling risk. So if you're perfectly healthy you are in essence paying for other people's treatment.
However, if you happen to run into very expensive health issues it's you that profits from the premiums of other people.
If insurance works as you describe it it wouldn't make sense at all and everybody would individually be responsible for her entire medical cost. With partially ruinous consequences for the individual.
If insurance works as you describe it it wouldn't make sense at all and everybody would individually be responsible for her entire medical cost. With partially ruinous consequences for the individual.
And better at real-time charging and paying for insurance in micro-increments. Predicting over the course of a year is hard, over the next microsecond, not so much.
Going to the gun range? Your insurance premium just went up by $6/hour. Speed in your car? Slam on your brakes suddenly? Driving quickly in heavy traffic? Drive at 3AM on Saturdays?
Actually, mandated insurance is perfectly in-line with what insurance is for. For n people, you now own a 1/n share of n risks that are not perfectly correlated with each other. Since people are assumed to be risk-averse and due to Jensen's inequality, your expected utility from paying your 1/n share is higher than your expected utility from taking a chance and either 1) paying nothing if you don't experience the adverse event, or 2) incurring the full cost of the adverse event.
I think what you're trying to say is that the aggregate risk remains the same under mandatory coverage, put that's going to be true no matter what and the effects of this risk can be optimally spread through insurance.
As an example, say $180 billion dollars worth of damage is done to 1 million homes in the US through natural disasters every year. With 300 million people in the US, mandated insurance would have everyone pay $600 a year to cover these damages. No insurance would mean you paid nothing unless your house was affected, at which point you lost on average $180,000. Insurance exists to pool the risks of these life-destroying events.
Insurance definitely isn't going away, in fact our capability to insure against a wide variety of events is in its infancy. The insurance market will only get more and more sophisticated. Hank Greenberg has some interesting thoughts on the direction of the industry.
Perfectly. Wow. You've confused a single-payer system with mandated-coverage for-profit insurance companies...that will somehow be forced by regulation to "optimize"...cost? Yeah. What's the CEO of UnitedHealthcare's nut, again?
Let's talk outcomes and efficiency, and not pretend charging doctors $39 to file "insurance" paperwork is anywhere close to optimal.
And, yes, aggregate risk for people will not change, as we, unlike our tools (e.g. a house), are only at equilibrium when we are dead.
Insurance companies that can better predict customer risk outcompete those that don't. They can charge less for lower-risk customers and still make a profit, thus drawing them away from their competitors and leaving their competitors with higher risk people who pay too little.
Yet, the end game is that everyone can predict risk so thoroughly that insurance is pointless.
It's ultimately a weird, backwards Tragedy of the Commons, and various non-discrimination laws are sort of the regulatory response to it.
Yet, the end game is that everyone can predict risk so thoroughly that insurance is pointless.
Not true. Suppose you have a 0.01% chance of needing a $10M treatment in your lifetime. First of all you can't say, "Oh I'll just self insure" because few people have $10M. Second, you may decide that paying $10,000 over the course of your lifetime is preferable to risking a payment of $10M.
Removing uncertainty doesn't eliminate the need for insurance, it just reduces the opportunity for risky subscribers to socialize their risk, and for insurance companies to reap gross profit.
Um, in both of those cases, removing the uncertainty would eliminate the need for insurance:
In the first, the insurance company would know, with certainty, who falls into that 0.01% category, and charge them $10m for insurance in their lifetime.
In the second, the insurance company, with certainty, would know what year the treatment is needed, and charge a $10m premium for that year only.
Ok, I guess what I mean is eliminating uncertainty in risk profiles. IMO we are headed towards a world with good risk profiling- but I doubt we are anywhere close to predicting the future with certainty.
Insurance companies are identifying things like "Driving at night increases risk of accident". They are nowhere close to, "A blue corvette driven by a 43 year old male will rear-end a ford pinto today"
As of January 2014, the ACA made it illegal to base premiums on current or past health status. So at least in the US pricing like this no longer occurs.
Which means that if your current and past health status are poor, you're probably aware of this, and should sign up for the best insurance you can, since you're far more likely to reap the benefits. You should overinsure yourself, and buy some investments in the hospitals that you're going to be visiting.
Those with above average current and past health status should enrol into the very least amount of insurance they can get away with.
This is, of course, why the law against changing premiums based on a person's health status was combined with a law requiring everybody to buy fairly comprehensive insurance whether or not they want it.
A 0.01% chance means uncertainty. Eliminating uncertainty would mean that you know your risk is either 1 or 0. If it's 0, you wouldn't buy insurance, and if it's 1, they wouldn't sell it.
For now. The mandated electronic medical records from the ARRA and ACA will make it easier for entities, government or private, to do so in the future.
A single-payer system would have similar incentives (in the form of cost reduction) to do the same.
there should be no limits on smokers. There is no possible health benefit with smoking and as such penalizing them might get them quit. Many self insured companies already charge extra, 600 a year where I am. However for the money most make that isn't diddly, at least they don't think so
Vanderbilt University economist Kip Viscusi claims a net cost savings of 32 cents per pack sold [1]. It seems we're all going to die, and Alzheimer's isn't part of the quick and easy way out of healthcare cost. And at the ripe age of 125 or so, 100% suffer cancer.
Smoking could save money for society but it probably doesn't save money for individual insurers, who are much more worried about the shorter term. The private insurance you have when you're 30 isn't going to be paying for your nursing-home care when you're 90, but they are likely to end up paying for various smoking-related illnesses that kill you sooner.
We don't really have Health Insurance companies. Insurance is about risk management, and we have mandated health coverage. But, to your point, this is why real insurance companies manage their portfolios, aggregate. If they're losing money, it's not the responsibility of society to save them.
You're not wrong that there's a negative correlation between smoking and obesity or Parkinson's, but that is not a reason to take up smoking. You're far more likely to die of cancer or heart disease as a smoker than you are not to die from Parkinson's because you smoked.
In the case of poor diets, it's often enough a matter of what they can afford. So, yes. Let's impose a financial penalty on people who are eating poorly because they can't afford to eat well. That makes perfect sense.
That said, I'm not opposed to smokers paying higher premiums — but that practice already exists, based on policyholder disclosure, or rescission in the event of fraud. (I say that as a former smoker, who did disclose my habit, and paid a substantially higher premium because of it.) We don't need carriers trolling through peoples' transaction history to dredge up every possible excuse for hiking premiums, because that's exactly what they'll do.
You can eat well for cheap. But it requires discipline. And that's what lot of poor people lack. (It's a survivorship bias: discipline helps your chances of getting out of poverty.)
Yes, it's true that sometimes you can find healthy stuff for relatively cheap. It's also true that you cannot do it consistently, in order to "eat cheap" in a consistent manner, it means constantly hunting for those deals, which implies trading your time for money. This is something the poor do a lot of, sitting at a laundromat instead of just throwing clothes in a washer, for example.
And I don't want to hear about eating some form of beans 5 days/week, eating healthy implies variety.
It can occassionally be done as cheaply as eating unhealthily, but not consistently over time. Your food bill will go up.
No need for deals. Just stick to the basics, and avoid sugar and other crap.
And I don't want to hear about eating some form of beans 5 days/week, eating healthy implies variety.
Vegetables can be pretty cheap, if you stick to what's in season. Beans are a good start, add lentils, potatoes, carrots, etc. Offal makes for cheap protein (but is not to everyone's taste).
On the other hand you could get cheaper insurance by paying in cash or being healthier. This is the point of insurance, to estimate your risk as accurately as possible and charge based on that.
Again, we don't have health "insurance". Actual insurance, as the term is used everywhere but in the American health care system wouldn't cover routine care like visits to your kid's pediatrician, but would cover major care such as surgeries — just like your car insurance doesn't cover oil changes, but does cover fender benders.
Auto and home insurers in fact do pay customers for risk-mitigation actions like driver training and alarm systems, just as health insurers pay for preventive medicine.
They don't pay you for those things, and nor do they pay for them. They reduce your premiums if you have them. That's perhaps a subtle distinction, but it's a critical one.
If you're suggesting that an annual physical exam is the risk mitigation equivalent of a car alarm, then GEICO should have eaten the extra cost for purchasing a car with one installed instead of charging a lower premium because you have one.
Huh? My (mandatory and public) health insurance in Germany does pay for that. For some short time there was a €10 co-pay for routine checks (obviously not covering the actual cost of the visit) but even that was abolished some time ago.
I mean, insurance doesn’t cover everything, obviously, but that mostly applies to nice to have things or aesthetic things that aren’t really necessary (e.g. root canal treatment for wisdom teeth is not covered – pulling wisdom teeth if the caries is causing problems that can’t be solved with fillings anymore is, glasses are not covered, etc.).
The penalty is for being unhealthy, not poor. There are poor people that are healthy, just because a lot aren't, do you expect insurance companies to give them special treatment?
So? Should we give criminals an easier time because the majority are from poor backgrounds? There will always be poor people and there are always things you can do to make their lives better, complaining about insurance companies isn't one of them.
This is coming from somebody who was raised in a very poor family so it's got nothing to do with not caring about poverty. It's just these sort of liberal ideas you could hear at an occupy protest show zero understanding of economics and are basically just bitching about companies.
Comments
The next step is "health insurance" (as we call it in the US, though it's in actuality no such thing) carriers mining your credit card and loyalty program data and hiking your rates if their model predicts you're going to need more or more expensive care.
The problem is that unhealthy lifestyles (drinking, smoking, fast food, &c) are disproportionately found among the lower socioeconomic strata, creating yet another penalty for being poor.
The funny thing is that the insurance industry is obsoleting itself.
If they perfectly assess risk, your annual premium will just be your annual cost plus all of the administrative costs of insurance, so just self-insure. We're getting closer and closer to that, further eliminating any value that anyone gets from insurance.
The idea of insurance is pooling risk. So if you're perfectly healthy you are in essence paying for other people's treatment.
However, if you happen to run into very expensive health issues it's you that profits from the premiums of other people.
If insurance works as you describe it it wouldn't make sense at all and everybody would individually be responsible for her entire medical cost. With partially ruinous consequences for the individual.
I think that's his point.
The exact costs will never be calculable in advance.
We are never going to reach a point where we can accurately predict whether someone will be hit by a bus or shot.
But we're getting better and better at it.
And better at real-time charging and paying for insurance in micro-increments. Predicting over the course of a year is hard, over the next microsecond, not so much.
Going to the gun range? Your insurance premium just went up by $6/hour. Speed in your car? Slam on your brakes suddenly? Driving quickly in heavy traffic? Drive at 3AM on Saturdays?
Insurance is a mode of risk management. If we all have mandated coverage, then all risk is assumed, and the term "insurance" is meaningless.
Actually, mandated insurance is perfectly in-line with what insurance is for. For n people, you now own a 1/n share of n risks that are not perfectly correlated with each other. Since people are assumed to be risk-averse and due to Jensen's inequality, your expected utility from paying your 1/n share is higher than your expected utility from taking a chance and either 1) paying nothing if you don't experience the adverse event, or 2) incurring the full cost of the adverse event.
I think what you're trying to say is that the aggregate risk remains the same under mandatory coverage, put that's going to be true no matter what and the effects of this risk can be optimally spread through insurance.
As an example, say $180 billion dollars worth of damage is done to 1 million homes in the US through natural disasters every year. With 300 million people in the US, mandated insurance would have everyone pay $600 a year to cover these damages. No insurance would mean you paid nothing unless your house was affected, at which point you lost on average $180,000. Insurance exists to pool the risks of these life-destroying events.
Insurance definitely isn't going away, in fact our capability to insure against a wide variety of events is in its infancy. The insurance market will only get more and more sophisticated. Hank Greenberg has some interesting thoughts on the direction of the industry.
Perfectly. Wow. You've confused a single-payer system with mandated-coverage for-profit insurance companies...that will somehow be forced by regulation to "optimize"...cost? Yeah. What's the CEO of UnitedHealthcare's nut, again?
Let's talk outcomes and efficiency, and not pretend charging doctors $39 to file "insurance" paperwork is anywhere close to optimal.
And, yes, aggregate risk for people will not change, as we, unlike our tools (e.g. a house), are only at equilibrium when we are dead.
It's a fundamental paradox with insurance.
Insurance companies that can better predict customer risk outcompete those that don't. They can charge less for lower-risk customers and still make a profit, thus drawing them away from their competitors and leaving their competitors with higher risk people who pay too little.
Yet, the end game is that everyone can predict risk so thoroughly that insurance is pointless.
It's ultimately a weird, backwards Tragedy of the Commons, and various non-discrimination laws are sort of the regulatory response to it.
Yet, the end game is that everyone can predict risk so thoroughly that insurance is pointless.
Not true. Suppose you have a 0.01% chance of needing a $10M treatment in your lifetime. First of all you can't say, "Oh I'll just self insure" because few people have $10M. Second, you may decide that paying $10,000 over the course of your lifetime is preferable to risking a payment of $10M.
Removing uncertainty doesn't eliminate the need for insurance, it just reduces the opportunity for risky subscribers to socialize their risk, and for insurance companies to reap gross profit.
Um, in both of those cases, removing the uncertainty would eliminate the need for insurance:
In the first, the insurance company would know, with certainty, who falls into that 0.01% category, and charge them $10m for insurance in their lifetime.
In the second, the insurance company, with certainty, would know what year the treatment is needed, and charge a $10m premium for that year only.
Ok, I guess what I mean is eliminating uncertainty in risk profiles. IMO we are headed towards a world with good risk profiling- but I doubt we are anywhere close to predicting the future with certainty.
Insurance companies are identifying things like "Driving at night increases risk of accident". They are nowhere close to, "A blue corvette driven by a 43 year old male will rear-end a ford pinto today"
As of January 2014, the ACA made it illegal to base premiums on current or past health status. So at least in the US pricing like this no longer occurs.
Which means that if your current and past health status are poor, you're probably aware of this, and should sign up for the best insurance you can, since you're far more likely to reap the benefits. You should overinsure yourself, and buy some investments in the hospitals that you're going to be visiting.
Those with above average current and past health status should enrol into the very least amount of insurance they can get away with.
This is, of course, why the law against changing premiums based on a person's health status was combined with a law requiring everybody to buy fairly comprehensive insurance whether or not they want it.
A 0.01% chance means uncertainty. Eliminating uncertainty would mean that you know your risk is either 1 or 0. If it's 0, you wouldn't buy insurance, and if it's 1, they wouldn't sell it.
Only, those don't help, if people know how high their own risks are and if they can still decide whether to sign on.
Indeed, thus the recent regulatory push to require people to buy health insurance whether they want it or not.
Happily, Obamacare limits the extent to which they can do that.
For now. The mandated electronic medical records from the ARRA and ACA will make it easier for entities, government or private, to do so in the future.
A single-payer system would have similar incentives (in the form of cost reduction) to do the same.
there should be no limits on smokers. There is no possible health benefit with smoking and as such penalizing them might get them quit. Many self insured companies already charge extra, 600 a year where I am. However for the money most make that isn't diddly, at least they don't think so
Well, margin is a difficult concept to grep.
Vanderbilt University economist Kip Viscusi claims a net cost savings of 32 cents per pack sold [1]. It seems we're all going to die, and Alzheimer's isn't part of the quick and easy way out of healthcare cost. And at the ripe age of 125 or so, 100% suffer cancer.
1. http://usatoday30.usatoday.com/news/health/2009-04-08-fda-to...
Smoking could save money for society but it probably doesn't save money for individual insurers, who are much more worried about the shorter term. The private insurance you have when you're 30 isn't going to be paying for your nursing-home care when you're 90, but they are likely to end up paying for various smoking-related illnesses that kill you sooner.
We don't really have Health Insurance companies. Insurance is about risk management, and we have mandated health coverage. But, to your point, this is why real insurance companies manage their portfolios, aggregate. If they're losing money, it's not the responsibility of society to save them.
"no possible health benefit with smoking"...as usual, it's more complicated.
See, for example, http://aje.oxfordjournals.org/content/155/8/732.full
for the negative correlation between smoking and Parkinson's disease, and
http://ajcn.nutrition.org/content/87/4/801.full
for some insights into the negative correlation between smoking and obesity.
Not to say that smoking is a good idea, it's not (actuarial data are clear on that), but your view of its consequences is inaccurate.
You're not wrong that there's a negative correlation between smoking and obesity or Parkinson's, but that is not a reason to take up smoking. You're far more likely to die of cancer or heart disease as a smoker than you are not to die from Parkinson's because you smoked.
Americans are pretty likely to die from heart disease anyways, smoker or non-.
moralizers like yourself are why people should be very very afraid of data collection like this.
Right, the only question is who gets to pay that penalty. Why not the people responsible for incurring it?
In the case of poor diets, it's often enough a matter of what they can afford. So, yes. Let's impose a financial penalty on people who are eating poorly because they can't afford to eat well. That makes perfect sense.
That said, I'm not opposed to smokers paying higher premiums — but that practice already exists, based on policyholder disclosure, or rescission in the event of fraud. (I say that as a former smoker, who did disclose my habit, and paid a substantially higher premium because of it.) We don't need carriers trolling through peoples' transaction history to dredge up every possible excuse for hiking premiums, because that's exactly what they'll do.
You can eat well for cheap. But it requires discipline. And that's what lot of poor people lack. (It's a survivorship bias: discipline helps your chances of getting out of poverty.)
You cannot consistently eat well for cheap.
Yes, it's true that sometimes you can find healthy stuff for relatively cheap. It's also true that you cannot do it consistently, in order to "eat cheap" in a consistent manner, it means constantly hunting for those deals, which implies trading your time for money. This is something the poor do a lot of, sitting at a laundromat instead of just throwing clothes in a washer, for example.
And I don't want to hear about eating some form of beans 5 days/week, eating healthy implies variety.
It can occassionally be done as cheaply as eating unhealthily, but not consistently over time. Your food bill will go up.
No need for deals. Just stick to the basics, and avoid sugar and other crap.
Vegetables can be pretty cheap, if you stick to what's in season. Beans are a good start, add lentils, potatoes, carrots, etc. Offal makes for cheap protein (but is not to everyone's taste).
I suppose it depends on your definition of cheap.
As cheap as eating unhealthily? no.
When the wealthy de-stress it's because they earned it. When the poor de-stress it's due to lack of discipline.
Yes, the wealthy have it easier. It requires less discipline to stay wealthy, than to become wealthy.
It has to do with where the stress came from in the first place.
Stress is usually self-inflicted. There are good reasons to subject yourself to stress, and there are bad reasons.
On the other hand you could get cheaper insurance by paying in cash or being healthier. This is the point of insurance, to estimate your risk as accurately as possible and charge based on that.
Again, we don't have health "insurance". Actual insurance, as the term is used everywhere but in the American health care system wouldn't cover routine care like visits to your kid's pediatrician, but would cover major care such as surgeries — just like your car insurance doesn't cover oil changes, but does cover fender benders.
Auto and home insurers in fact do pay customers for risk-mitigation actions like driver training and alarm systems, just as health insurers pay for preventive medicine.
They don't pay you for those things, and nor do they pay for them. They reduce your premiums if you have them. That's perhaps a subtle distinction, but it's a critical one.
If you're suggesting that an annual physical exam is the risk mitigation equivalent of a car alarm, then GEICO should have eaten the extra cost for purchasing a car with one installed instead of charging a lower premium because you have one.
Huh? My (mandatory and public) health insurance in Germany does pay for that. For some short time there was a €10 co-pay for routine checks (obviously not covering the actual cost of the visit) but even that was abolished some time ago.
I mean, insurance doesn’t cover everything, obviously, but that mostly applies to nice to have things or aesthetic things that aren’t really necessary (e.g. root canal treatment for wisdom teeth is not covered – pulling wisdom teeth if the caries is causing problems that can’t be solved with fillings anymore is, glasses are not covered, etc.).
Well you could argue that those things might prevent larger expenses. Or people are just willing to pay for them.
This is no longer true, at least in the US post-ACA 2014 requirements.
The penalty is for being unhealthy, not poor. There are poor people that are healthy, just because a lot aren't, do you expect insurance companies to give them special treatment?
So? It still disproportionately affects the poor.
So? Should we give criminals an easier time because the majority are from poor backgrounds? There will always be poor people and there are always things you can do to make their lives better, complaining about insurance companies isn't one of them.
This is coming from somebody who was raised in a very poor family so it's got nothing to do with not caring about poverty. It's just these sort of liberal ideas you could hear at an occupy protest show zero understanding of economics and are basically just bitching about companies.
Are they "bitching about companies"?
Nobody ever said it was their fault.