[The following is part 2 of a two-part guest post by Adfecto from Aspire 2 Wealth. I recommend you read part 1 first. Though I initially disagreed with him, I admit that he made some great points. He was kind enough to consolidate many of those thoughts into two posts. If you like this article, consider subscribing to his RSS feed.]

The elephant in the room when considering multi-tiered cost structure for health insurance is that it all boils down to a form of discrimination. If we go down this path, it is the same as saying women should pay more for insurance because, “pregnancy is so darn expensive.” There are hundreds of studies that say this group or that group is more susceptible to disease XYZ. Some, but not all, of these groups are protected by our laws against discrimination, and to some extent so are their medical records, their genetic code, and their personal lifestyle choices. If we start picking and choosing which of these factors can play into insurance pricing, where do we draw the line on that?

Why are we so worried about upping the cost that unhealthy people pay for health insurance anyway? Of course, it is because if they pay more it is assumed I will pay less. A natural self interest makes us quick to raise rates for the other guy; especially if it is because that person is an irresponsible “fat person” or “dirty smoker.” What we forget is that this can very quickly turn on us. What happens when we get sick? We would quickly change sides in this argument if our own child was born with a predisposition for a certain expensive illness. Alcohol consumption has been linked to various diseases. How many people who fought to have smoking banned in bars would suddenly be labeled ‘unhealthy’ if alcohol consumption was considered? The six beers Joe had during the Super Bowl now mean he should pay more? Not in my backyard; in other words, it is all fine until your personal poison is singled out or you will be directly affected for the worse.

The last point I want to make is that there is even some evidence that in the end, it isn’t even more expensive to treat unhealthy people. A new study by a Dutch research team that finds it is actually cheaper to provide medical care for unhealthy people than those who are healthy has recently been published in the Public Library of Science Medicine journal. The study specifically looks at the usual scapegoats, smokers and obese people. It concludes that in the short run, they incurred more health care expenses, but in the long run they cost substantially less. The study found that the ‘unhealthy’ people had a shorter lifespan and this caused their lifelong health care expenses to drop well below those who were deemed to be ‘healthy.’ If the goal is to make people pay their fair share, it would seem that unhealthy people should actually pay less. This finding completely contradicts to the ‘common wisdom’ and shocked many experts. In spite of this data, I still contend that to properly share risk, everyone should pay the same.

My point it this, insurance is suppose to spread risk and keep health care expenses predictable and manageable for everyone. I don’t think an actuary’s model, a doctor’s subjective assessment, or a geneticist’s analysis should affect how much a person pays for health insurance. To do otherwise would undermine the very reason for insurance in the first place.

[The following is part 1 of a two part guest post by Adfecto from Aspire 2 Wealth. He left a great comment on this subject. Though I initially disagreed with him, he made some great points. He was kind enough to consolidate many of those thoughts into two posts. If you like this article, consider subscribing to his RSS feed.]

A great deal of buzz has been generated lately about the idea of making people who are unhealthy pay more for health insurance. Most people’s knee jerk reaction when they hear about this idea is that, “of course unhealthy people should pay more.” It seems only fair that those who burden the system pay their fair share, right?

I’m here to tell you that it isn’t that simple. Your intuition has betrayed you, and in fact it is a terrible idea to charge different rates in this manner. Now, quickly before everyone quits reading, I want to pose a few questions that hopefully will encourage you to keep reading.

1. How do you decide who is unhealthy?

2. Who decides if someone is unhealthy?

3. How much extra should someone pay if they are unhealthy? 10%, 20%, 200%?

4. Where do we draw the line? If you are very unhealthy should you no longer qualify for any insurance?

5. Does it matter why you are unhealthy? What if a person was unlucky? What if a person was born unhealthy?

6. Why should unhealthy people pay more? Do unhealthy people really cost more to insure?

This is a lot to tackle in a single blog post, but my goal is to get everyone thinking. In the interest of full disclosure, I am overweight (but not morbidly so) and my wife has asthma. It is very likely that we may be the type of people others would want to single out for higher rates. That said, I think my arguments are not based solely on my bias against paying more for insurance.

Now to answer some of the questions: The obvious starting place is to break the population down into groups based on their health. Research has shown that certain groups of people are more susceptible to disease than others. First on the list are smokers and the obese. Smokers have been shown to be more likely to get cancer and obese people are more likely to have high blood pressure, heart attacks, or suffer a stroke. These are all expensive conditions to treat, and can be identified by simple screening.

My problem is this, even if you could define some characteristics that made a person “unhealthy,” you are still missing out on a lot of people who are equally unhealthy but don’t fit your metric. What about the skinny people who don’t eat any fruits or veggies? What about the fat people who regularly exercise? What about the people who work with radiation or carcinogens in their occupation? Which children grew up in homes with lead paint? Which people have seven close family members who have died of heart disease? The point is that creating an objective metric that encapsulates all of the genetic, environmental, and lifestyle factors that truly determine our level of health is not possible. To boil this complexity down to five or ten multiple choice questions would punitively affect many people who are healthy and miss many people who are unhealthy.

Now playing devil’s advocate for a moment, let us consider that we have indeed found our voodoo methodology to classify a person’s health or ‘un-health.’ I am sure an actuary could create a formula to determine exactly how much people in each category of health should pay, but recognize that number would be based on an imperfect model of disease and medicine. Based on some hypothetical model, a smoker may be charged 20% more on average for health insurance. That seems fair. Maybe the person who has high blood pressure is assigned to pay 10% more on average for health insurance. Again it may be in the right ball park. However, it is naïve to think that we understand our health so well that a mathematical formula can sum it all up, down to a dollar amount.

Now, what about the person who has Type I (childhood) Diabetes. This is a lifelong condition that requires all manner of treatments and medications. If the actuary comes back and says 50% or 100% more for health insurance, is that ‘fair’ or reasonable. This condition does not have anything to do with behavior, but it does cost an awful lot to treat. Now, what if an adult is diagnosed with diabetes, should it matter if it is Type II (somewhat based on lifestyle) or if it is late onset Type I? What if it is misdiagnosed? Finally, what if the disease is AIDS? Would it matter how it was contracted? Should that person pay double for health insurance? I would answer that it should not matter. We should all pay the same.

Move on to read part 2.