Why It Matters How We Define ‘Insurance’
Some types of insurance charge people according to risk. Others don’t. On health care, Americans are caught between the two, Greg Ip writes
Republicans want to strip out the regulations in Obamacare that require some people—primarily the young, male and healthy–to pay more so that others–mostly the elderly, female and sick–pay less. Critics say Republicans don’t seem to understand that insurance means some people subsidize others.
.. Pure insurance covers only random perils. Predictable perils generally require higher premiums. Teenagers and people with speeding tickets have more accidents, so insurers charge them more. If they were forced to charge risky and safe drivers the same amount, the latter would then be subsidizing the former.
.. Social Security, for example, effectively requires younger, affluent, able-bodied workers and two-earner couples to subsidize older, less affluent and disabled workers and one-earner couples.
.. pre-Obamacare health insurance was more like car insurance. Insurers could charge more to those they expected to cost more: women, the elderly, those with pre-existing conditions, with the result that many of these people went without insurance.
.. Conservative Obamacare opponents fall into two camps.
- One opposes the principle of subsidies, either direct or indirect via regulations and mandates, and are relatively indifferent to swelling the ranks of the uninsured.
- The other wants to reduce the uninsured, but without distorting the structure of the private market that forces some people to overpay so that others can underpay.
.. This second group would scrap many of Obamacare’s underwriting restrictions, which would stabilize the market by allowing insurers to charge premiums commensurate with risk. Those who couldn’t afford coverage because of gender, age or other risk factors would receive refundable tax credits.
.. age explains 75% of the variation in health risks
.. insurers could still be prohibited from excluding pre-existing conditions for members or charging women more than men. So long as they could underwrite based on age, and so long as patients maintained continuous coverage (rather than buying it only when they got sick), insurers could still price coverage profitably.
.. a 60-year-old
.. premiums for such a person are typically $13,000
.. boost that subsidy to $10,900
.. “The revenue/subsidies required to make it work are massive—because they have to substitute for all the complex cross-subsidies,”