Monday, August 31, 2009

Insurance insanity

Today's USAToday features an article about fairness in health insurance pricing, and the differing costs faced by the young and old. In a nutshell, older people are offended that they are forced to pay more -- what one analyst refers to an a "tax on getting old" -- while the young aren't thrilled about the prospect paying more in order to subsidize costs of their parents.

Further complicating matters is the fact that not all young people are healthy and not all older people are sickly. As one 60 year old quoted in the article says:
"There's a lot of us who are very healthy," she says. "Why are they picking on me when they have younger people on policies who are overweight, who smoke and don't exercise?"
It's a fair point. The article goes on to discuss efforts by insurance group to enable them to charge older Americans 5 times more than younger ones while opponents would like to see the ratio limited to 2 to 1.

The whole debate is ridiculous and a product of our over-reliance on insurance. Quite simply, like most things in life, those who use more should pay more, regardless of age. To do this we should move away from insurance and towards fee for service for non-emergency and catastrophic care. If you're young and lead an unhealthy lifestyle that requires more trips to the doctor you should have to pay more. If you are older but have kept fit you should be rewarded for that and pay less in the form of fewer visits with health care professionals.

That's not to say price discrimination based on age will not still occur. No matter how healthy a lifestyle you lead, your chances of going to the doctor are almost inevitably greater now than 30 years prior. Health insurance (for emergency and catastrophic events) for seniors will surely continue to cost more than for the young. But so what? Getting old isn't an unforeseeable or surprise event. You have plenty of time to plan and save for it. And why should the young, who make less money than those who are older, be forced to subsidize them by paying more for health care?

Just as someone whose house teeters on the edge of a cliff will pay more for home insurance or a poor driver will pay more for auto insurance, those who are likely to have a health incident will pay more.

This may offend the sensibilities of some readers, who instead believe that all people should be granted equal access to health care regardless of age. But no health care system in the world works this way, with single payer -- aka government-run -- systems rationing the amount of care given to its older citizens. They have to do this because health care is not an infinite resource, an immutable fact faced by every system.

Given this reality, the best that can be hoped for is a system which increases efficiency to make those scarce resources stretch as far as possible. The only proven system for promoting the kinds of innovation and efficiency gains to pull this off is capitalism, undergirded by choice and competition.

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