Wednesday, September 16, 2009

Health reform nonsense

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.


  1. High rates paid by the young could be viewed as a necessary transfer payment from the young to the old, along the lines of Social Security. So while I agree that Noah is wrong, maybe we should have young people pay more than they'd like to because otherwise old people simply aren't able to afford their own health care by themselves. And since all people start young, all people will bear some of this transfer-payment burden.

  2. I don't agree. On the whole old people are better off financially than young people so I don't see the case for asking young people to subsidize their medical insurance. And I believe the young people in question will skew poor as young people with good jobs will have employer based coverage and full time students will often still be on their parent's plan.

  3. Yglesias has more on this issue. It appears that even the House bill allows some rate variation with age but that the Baucus bill allows more.

  4. Funny that this liberal fetish does not apply to tax rates.
    Overall, the more social-engineering-like (i.e. artificial) mechanisms they will put in, the more likely the hard working and responsible part of society will retreat, as James points out. Eventually, this will erode everyone's good beliefs and efforts. The standard will plummet and the situation will be essentially irreparable, as any reverse step from handout-like system to a more stringent and honest system is 10x harder than vice versa.

  5. Health insurance differs from most other forms of insurance in the following way: If, for example, you fail to insure your home against windstorm and it is demolished by a tornado, then you suffer a severe financial loss. This seems fair: you took a risky gamble, and you lost; so you bear the consequences. The rest of us just shake our heads but in most cases feel no obligation to purchase you a new home.

    However, if you go without health insurance and experience serious sickness or injury, the majority in our society are unwilling to look the other way and say, "You lost your gamble; so now you will bear the consequences by suffering or even dying for lack of adequate treatment; don't expect us to pay for any treatment." To me this is the major reason why having health insurance should be mandatory -- so that those who choose not to be insured do not transfer their costs to the rest of us.

    If everyone is insured all the time, then the question at hand is how their payments for their insurance are to be distributed over their lifetimes: Should the payments be uniform or vary with age? Ideally they should be distributed in a manner that is the most affordable; actuaries can figure out just what that is.

  6. Regarding whether "older people are better off financially" and can deal with higher insurance costs, check out this abstract. The abstract points out that this statement certainly isn't true for many older, divorced, widowed women, or women of color. Many older women never worked except at home, or worked outside the home sporadically. All these factors impact her net worth tremendously.

    See: - 100k

    The Gerontologist 47:224-234 (2007)
    © 2007 The Gerontological Society of America
    The Economic Consequences of Widowhood for Older Minority Women

  7. I doubt there is currently a majority in this country supporting any of the reform proposals. Solving the problem of someone not being able to get the highest-quality care because they chose not get an insurance, by transforming the society to one that exists in a all-sorts-of-mandatory system, requires some leap of faith. The very essential (and actually really simple) question in this struggle is: will you let a few (government, actuaries) take away your choice and along with it your responsibility? People who do not like self-responsibility will tend to say yes, people who do will say no. The corollary issues of how affordable things are or are not, exist in both directions and can be addressed in both.
    How much responsibility people like to take varies widely. But I personally am a sceptic: 1/3 of the population is obese, 2/3 of the population is overweight, solid amounts are smokers, troubling proportions misuse drugs. Masses' love for shiny SUVs seems ever lasting. Overall, a troubling proportion (by my subjective estimation) want to get from society more than they put in.
    So will let government cater to those?

  8. Here is an example of the medical irresponsibily of which you speak. In Colorado because of state law, motorcyclists have the right to leave their helmets at home. (Perhaps they like the idea of the wind blowing through their hair, who knows?) These same individuals take the risk of a terrible accident thanks to this "right." This means that you, the taxpayer, bears the burden for their medical expense when they run into a tree.

  9. It strikes me as odd that those who fearfully imagine that reformed health care will "let a few (government, actuaries) take away your choice and along with it your responsibility" seem content when "government" is replaced by "insurance companies", which describes the situation now.

  10. Ah :) no a fearful imagination needed, just take lessons from the plentiful supply of failed socialist countries ("mandating" is a daily pass time there).
    With the numerous insurance companies around, at least I know they run a business, and within some regulatory framework, compete for customers and strive to be efficient as much as possible in that given framework. Government will never be that.
    I have no particular ambitions to explain myself in more length and to convince anyone, in fact, I almost believe there is a DNA bit somewhere in every one of us. It is set as follows: 1-conservative, 0-democrat; and it cannot be switched. So enjoy your view, soon you may get what you wished for.