Insurers to Sacrifice Risk-Rating in Exchange for Monopoly

In yesterday’s post about the actuarial necessity of Pre-Existing Conditions exclusions, someone left a comment here accusing me of not knowing what “adverse selection” is¹, and that maybe Politicians do know. So it was fortunate for me, that my friend Zach e-mailed me this article from this morning’s NYT, which gives me the opportunity to demonstrate yet again that politicians either don’t know anything about the industries they’re attempting to regulate, or, if they do, they’re more than willing to sell us out to the highest bidder.  In fact, I propose that one of the only things politicians are any good at, is colluding with Big Business in order to steal from the rest of us.

The article describes how some of the big players in the Insurance industry have pulled an about-face, and are now prepared to drop their policy of charging higher premiums to those people with existing conditions or poor health histories, otherwise known as actuarially sound risk management:

Insurers said they were willing to discard an element of their longstanding business model — pricing insurance policies, in part, on the basis of a person’s medical condition or history.

To review: broadly, there are only two types of people who don’t have insurance:

1. Those who want it, but can’t afford it
2. Those who can afford it, but don’t want it.

When insurers are able to charge premiums based on risk, and some choose not to, low-risk customers will defect to companies willing to accurately price them, and high-risk customers will for the most part flock to the companies that neglect risk-management in favor of non-discriminatory pricing. This is a move that guarantees bankruptcy for any company which practices it. Because of this, no insurer can individually pursue a policy of ignoring very relevant factors, like medical history, existing/pre-existing conditions, etc., because the non- or the not-as- risky policy holders will defect to another company willing to pool their individual risk with others who are more similar. Competition and knowledge generally render null any attempt to secure profits by adverse selection.

What insurance companies all would like to do, is insure as many low-risk (and as few high-risk) individuals as possible. But they can’t do this, unless they also control prices, and the only way they can come close to controlling price is if everyone, or nearly everyone has to buy policies from them. So there’s one very important caveat to Big Insurance’s “concession”. They want Congress to do some favors for the insurance industry.  They need the strong arm of the government to force these people (and there are a lot of them!¹) to buy from them.

…In the past, insurers have warned that if they could not consider a person’s health status in setting premiums, the rates charged to young, healthy people would need to soar. But they said Tuesday that they were exploring ideas to prevent such sharp increases by spreading the risk and costs broadly across a larger population, including the healthy and the unhealthy

Translation: all your money are belong to us.

In exchange for risk-rated pricing the insurance industry would like Congress to adopt “A comprehensive plan requiring all Americans to carry insurance.” Think about what that means for a moment: Businesses are willing to give up otherwise sound business practices in exchange for Oligopoly/Monpoly market power, and the rents that might be extracted from the people, if they can get their way, which would allow them to “spread the risk and costs broadly across a larger population”. And they probably will, what with “Universal Coverage” being politically à la mode.

In their letter to Congress on Tuesday, Ms. Ignagni (of America’s Health Insurance Plans) and Mr. Serota (of Blue Cross and Blue Shield Association) said that if Congress enacted an enforceable requirement for everyone to carry health insurance, “we could guarantee issue of coverage with no pre-existing condition exclusions and phase out the practice of varying premiums based on health status in the individual market.”

Risk shouldn’t be “spread across the whole population,” especially when it’s distinctly identifiable and largely controllable. Otherwise, it destroys any incentive for people to be responsible for their own actions (encouraging socially undesirable behavior and consequences. It breeds contempt for others, who have no more regard for their fellow man. It violates every notion of justice and equity in the name of “fairness” and “progress.” And this so-called “progress” destroys charity, compassion, and community.

If this becomes law, that choice currently exercised by 28 million people will become a punishable offense. Most of them will “consent” and buy whatever minimum policy they can get away with. Thus, “universal” coverage is achieved when those people who don’t want it (but can afford it) are forced to pay premiums in order to support the others who want it (but don’t want to pay for it). This is not a free market, it’s fucking fascism. And when it fails (and it will fail) don’t you dare make a scapegoat out of the “free market”, because I told you so.

Whenever you see the word “require” or “enforce” especially when it pertains to your health and well-being, you should be very afraid.

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1. Adverse selection can be summarized thusly: when insurers can’t charge premiums based on risk, all insurers seek to only insure those individuals who are the least exposed to potential loss. In theory, at some point the market disappears, because insurers are only willing to underwrite people who have little to no probabilistic need for coverage.

2. One popularly cited figure is that “46 million” American’s don’t have health insurance. Except that a quarter of the people counted in that figure aren’t even citizens. The remaining 36 million are disproportionately young and a majority of them (61%) earn more than $50,000 per year — above the median income. This proposal would require all 28 million of these folks to buy something that they are already free to purchase, if they’d like — they just choose not to.