Young drivers are more likely to get in auto accidents. As a result they pay more for auto insurance. No one seems to think this is outrageous.
On the other hand young people are less likely to require expensive medical care. But for reasons that baffle me, many of the people backing health reform think it would be terrible if young people got a break on rates for medical insurance. It appears the Baucus plan contains a provision to allow young people to pay lower rates. Timothy Noah is annoyed . Apparently in his view treating young people fairly constitutes "pandering". For
Everybody else gets screwed ...
In Noah's world it is unfair to require people to pay fair rates. This is connected to a common liberal misapprehension about insurance.
... Insurance, after all, works only to the extent that it can spread risk among a diverse population. ...
This is completely wrong. Insurance works just fine with homogeneous pools. The purpose of insurance is to hedge against future bad luck. There is no need for good risks to subsidize bad risks. There is no reason for people in California to be forced to buy tornado insurance to reduce rates for people in Kansas or for people in Kansas to be forced to buy earthquake insurance to reduce rates for people in California.
The liberal fetish for community rating (charging everybody the same rate) for medical insurance makes their plans difficult to implement as it means there will be a large group of people who are being overcharged and who will look for ways out. Allowing them to leave will set off an adverse selection death spiral but forcing them to remain will be complicated and unpopular.
Even just allowing rates to vary by age and sex would considerably reduce the mismatch between rates charged and actual risk and alleviate the above problem. But this appears to be anathema to the reformers.
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