In defense of health insurance discrimination
One of the ugliest spectacles in the push for ObamaCare has been the demonization of the health insurance industry. Nancy Pelosi went so far as to call them “villains”. Obama has been a bit more circumspect, suggesting only that they are not honest.
There are plenty of real problems with health insurance today. Many are frustrated by the ever-increasing cost of health insurance, the seemingly impossible task of figuring out what their insurance covers, the fear of losing their job and with it their insurance. But as my colleague Jeff Scialabba has been pointing out, these sorts of problems are the result of government interference in the health insurance market. The less-regulated life insurance market, for example, does not have spiraling costs, miles of bureaucratic red tape, or a pervasive employer-sponsored system tying people to their jobs.
But there is another category of charges leveled at health insurance companies that is not legitimate. These complaints brand insurance companies as evil because they engage in an array of discriminatory behaviors, which ObamaCare promises to end. The Baucus bill (PDF here), for instance, contains guaranteed issue and modified community rating provisions. This means that insurance companies will be forced to insure everyone, regardless of pre-existing conditions, and must charge everyone in the same age range identical premiums. The idea is that treating different consumers differently is unfair.
But in actual fact, it is eliminating health insurance discrimination that is unfair. Forcing insurance companies to take all comers, and to charge all customers similar fees can accomplish only one thing: to force some health insurance customers (primarily the young and healthy) to subsidize other health insurance customers (the elderly and the sick). That’s not insurance–that’s welfare.
The overall effect of eliminating health insurance discrimination is to drive up the costs of health insurance. As the Wall Street Journal points out, states that currently prevent insurance discrimination through community rating and guaranteed issue rules have the most expensive individual insurance markets in the country. “In 2007, the average annual premium in New Jersey was $5,326 for singles and in New York $12,254 for a family, versus the national average of $2,613 and $5,799, respectively.”
We abhor racial discrimination, not because it is discrimination, but because race has no bearing on a person’s intellect or character. But when it comes to insurance, it is obviously relevant whether someone has pre-existing conditions, or is otherwise at greater risk to need medical care. That’s not to say that on a free market people at risk for disease would not be able to buy insurance. They would simply have to pay more than people without such risks. (John Cochrane has an interesting discussion of how preexisting conditions might be handled on a free market in the Wall Street Journal.)
Think about it this way. If we can painlessly ban health insurance discrimination, then why don’t we end all discrimination for all forms of insurance? Why should we have to buy car insurance before we get in an accident? Why should Geico be able to drop Robert Downey, Jr. after his fifteenth DUI? Why should a three-pack-a-day smoker have to pay more for life insurance than Michael Phelps?
Insurance is inherently discriminatory. An insurance company cannot function without assessing risk, charging greater fees for greater risks, and refusing to provide “insurance” to those for whom the outcome in question is certain. It is by carefully assessing risk and discriminating accordingly that insurance companies enable us to protect ourselves against some of life’s unknowns. That is a crucial benefit, and those who provide it should not be smeared, but thanked.