Saturday, March 2, 2013

Is medical insurance just medical insurance?

I ate dinner yesterday. You probably did too.

But we didn't eat the same thing. I had a buffalo chicken sandwich. You might have had PB&J. Or maybe you had steak or lobster. Even if you also had buffalo chicken you didn't necessary eat the same size sandwich, or one with the same quality and mix of ingredients.

We don't expect everyone's dinner to cost the same amount. People eat different things. If you eat more, you pay more.

We tend to think that is fair, even though men eat more than women, on average, so they also pay more for their dinner. Fatter people eat more than skinner people and old people eat less than growing teenagers, with corresponding larger bills, but we don't have a problem with that either.

Yet we do have a problem when people buy very different health insurance products and don't pay the same price. We insist that, to be fair, everyone pays the same or almost the same premiums.

Someone who smokes, for instance, is much more likely to get lung insurance this year than someone who does not smoke. People with diets high in salt are more likely to have high blood pressure and heart attacks. People who exercise are less likely to get depressed (and less likely to get almost any other disease).

Health insurances pays out more when you get sick, so it is worth more to people who are more likely to get sick. It also costs more to provide that insurance. In other words, when Bill and Bob buy health insurance they aren't buying the same thing any more than they are when they buy "dinner." If Bill is a higher risk than Bob he's buying more insurance the same way he might if he was hungrier and bought more food.

It doesn't make sense to insist that Bill and Bob should pay the same price out of fairness any more than it would to insist they both pay the same price for dinner at McDonalds. If Bill orders off the dollar menu and Bob buy a large Extra Value Meal they will pay different prices for the same thing, "dinner," and that is fine because "dinner" isn't just dinner. If Bill pays higher premiums that is fine too, because "medical insurance" isn't just medical insurance.

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