[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.
Adfecto, I think the Dutch study addresses a government subsidized program. However, the healthy people (in the U.S.) that live longer would (in theory) pay more health care premiums over their life time than an unhealthy person.
By having a few things items that any person can strive for (a healthy BMI, normal blood pressure, etc) decrease their health care costs, I think it would help people make healthy decisions. I don’t think it should be controlled by the government, but my individual corporations and insurance companies.
FYI, the study link seems to be broken…
“. 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.'”
wow, morbid.
In any case I think it is interesting to point out that in some ways we already have premiums based on health. For independent insurance, they check on recent medical expenses etc before granting coverage. Obviously its not an all encompassing thing, but it does exist.
“If we go down this path, it is the same as saying women should pay more for insurance because, “pregnancy is so darn expensive.””
The problem with this argument is that men pay more auto insurance. If men pay more auto insurance than women, why shouldn’t women pay more health insurance than men?
Another problem with the argument is that you’re paying insurance for two people, effectively. You’d probably be paying for health insurance for the child after he/she is born; why wouldn’t you pay for health insurance for the child beforehand, also?
I think the worst problem with health insurance is that it spreads the cost from a few sick individuals to a large group of healthy individuals! Wait what? Well, the problem with spreading the costs is that it allows health care providers to charge more, a lot more. The problem is not really with health insurance per se but with the runaway costs of health care. (A similar structural problem is found in the government when the Pentagon pays $800 for a toilet seat). This problem is increased by people who have low deductibles. Seriously, insurance is meant to help against catastrophic expenses – not to avoid a $15 copay or a $500 treatment. One conclusion of the Dutch survey (I think we already knew that) is that most of the money is spent on prolonging the last few years of a persons life through heroic and very costly measures. I think we should reconsider whether that is really worth it. I’ve tried to convince some smokers (I don’t smoke) that it’s crazy to smoke when it might cut their life short by 5-10 years. Their point, which is a good one, is that they’d rather lose those years than lose their cigarettes for 40-50 years. Similarly, I would rather have $1000 extra each year for 50 years than spending the last 6 months of my life in a hospital bed full of tubes. I think this would make for more happiness overall.
@ Saving Diva
It is important to remember that we all pay for Medicare / Medicaid (here in the US anyway). This is the period of life where the most health care spending is concentrated. As Early Retirement Extreme notes, it is the end of life heroics that do indeed add up to much of the cost which is paid for by tax payers and not by premiums. The Dutch study notes that nursing home care is a primary driver of cost, which is exactly what Medicaid (again funded by taxes not premiums) pays. In other words, your premiums do not cover the most expensive part of most “healthy” people’s health care (it is the tax payers).
@ Jesse
Yep it is morbid but also true. To top it off, I contend that for most people who die from these conditions (but obviously not all) have very minimal negative impact on productivity. They generally die after their peak earning/productive years and almost always after they have completed basic child rearing. If you die from obesity from at 55 (even more so 65) or later… Honestly the society as a whole has lost very little but saved plenty on your care in old age. Again, cynical but true.
@ Mike
I won’t disagree too much with your argument, except what I was getting at is that it is discrimination. Even if it may be justified by the cost realities. Just as hiring person X vs person Y based on their ethnicity might in reality have an impact on the bottom line; it is still discrimination and that is still wron
@ Early Retirement Extreme
I’m with you on the 40 years of fun vs 5 years of being very ill at the end. My problem is that there are many counter examples of people who live to 100 and love every day. They are healthy and climb mountains and kayak the Colorado at 80 and do the things they love all the way until they die. If that could be me I’d trade the extra helping of mashed potatoes or side of pasta (or quit smoking if I did smoke). There are not guarantees but it is worth trying to be healthy for no other reason than that chance.
@ All
Great comments. I hope there are more to come!
In addition to the Dutch study there was an article in NEJM (New England Journal of Medicine) that also expressed doubts in cost cutting power of prevention – I posted the link in the previous thread.
A couple things that I’d like to add to what I’ve already posted in another thread.
First is that what is considered “healthy” and non-healthy changes as more research becomes available. I don’t think there’ll ever going to be any doubt that smoking is (extremely) bad for you – there is a wealth of evidence here; but the BMI issue isn’t that clear. Some athletes like basketball players may have high BMI, but they are still fit. A number of studies said that waist-to-hip ratio is a better measurement; a couple of studies (sorry cannot find links) said that mildly overweight may be better than thin. Currently, in a number of medical blogs doctors question the value of LDL cholesterol measurement (good summary of that, the author isn’t a doctor but the thread contains doctors’ posts – http://www.healthbeatblog.org/). Before 2002 it was considered good for post-menopausal women to take HRT. Some years ago all fat was bad and all carbs good, now it is bad and good fat and bad and good carbs. Making policies based on what is good today may actually push healthy people to take drugs that may have side effects and cause real harm.
Second, as it was mentioned in this and other thread, there are many reasons for rising health care costs. I’ve already posted about “defensive” reasons for ordering unnecessary tests; there are also “defensive” reasons for medical procedures e.g. there are many cesarean sections in the US because there are so many cerebral palsy lawsuits – you can search throw medical blogs (e.g. kevinmd) to see doctors’ discussing it; drugs costs, etc. Last night I read another reason for it – changing definition of what the desease is that causes more people to take drugs (http://dinosaurmusings.blogspot.com/2008/02/shifting-definitions-diabetes-epidemic.html). Some of these changing definitions are evidence-based and probably benefit people, but they do raise health care costs; some may be overprescriptions. Almost everyone over 50 right now is on one prescription drug or another; many kids are on prescription drugs for behavior problems. This all raises healthcare costs.
@ kitty
I absolutely agree with you. We have two issues, one the knee jerk pay-for-being “unhealthy” insurance topic and also the run away medical costs that you have addressed very well. Neither are easy to fix in a fair and equitable manner that everyone would agree with.
@Adfecto – thanks, I’ve always agreed with you…
Here is by the way a doctor’s take on the issue. There was a discussion in medical blogs on a similar topic couple of years ago. This is one doctor’s view: http://dinosaurmusings.blogspot.com/2006/12/patient-responsibility.html
Yes, everyone should pay the same. But what will happen is some people will pay less because they make less money, and others will be forced to pay more because they make more money. And everyone gets the same coverage.
That’s even less fair than charging people differently based on the care they actually receive, because that’s not even a “get what you pay for” situation.
I don’t think people with more expensive health needs should pay more. I just don’t think people who make more money should either. I’d have fewer objections to universal health care if everyone paid the same dollar amount: $1,500/year per person (or whatever), period. But that will never happen.
I totally agree with Cameron. The socialization of health care would inevitably be very unfair. I don’t want the government telling me how much I have to pay and deciding what kind of medical treatment I can get.
Just look how well they handle our education system. The rich pay more in taxes for schools that are so bad that they must then pay even more to send their kids to private schools. I don’t want to be flying to Switzerland for a prompt surgery after paying $10,000/yr in health insurance taxes in the US.
I might be missing something, but I don’t think the subject here is socialization, but whether unhealthy should pay more for (any) health insurance. I have cousins in Germany, and I hear both good and bad stories from there, so I am pretty ambivalent about “single payer”. My cousins tell me there are discussions in Germany about switching to the US system all over their papers (the grass is always greener…). Not sure if it is true. In terms of denial of coverage for some procedures – it happens a lot with national health system like in the UK as well. The issue at hand is if “unhealthy” should pay more no how to improve the current system which is a whole different subject alltogether (and a complex one).
Besides, if it comes to the rich, given that I am in top 10% at least based on 2004 numbers, I’d probably be the one paying more…
I agree with Kitty, I think we’re confusing two issues here. 1) Socialization and 2) incentive based premiums. Both of which I’d like to address.
Insurance is inherently socialization, and that’s good thing. I’m fairly affluent but I would be hard pressed pay the hundreds of thousands that it would cost if I fell victim to cancer. That’s why I have insurance as a precaution against that. It is always the case that the healthy pay an “unfair” share to ensure that the unhealthy get taken care of. Would it be better that anytime someone became unhealthy that they would have to pay the full cost of treatment? Given that we do have the concept of insurance, I think few of us think that people should get treatment for only what they can pay for at any given time. Insurance even private insurance is effectively a compact to enter into some form of socialization. Premiums are not so different from taxes. The question of the role of the Government is a trickier matter, and mostly exists because as society we are not so cold that we would are willing to to be people die quite so easily. Should hospitals refuse emergency room admittance to stabbing victims just because they don’t have insurance? While some would take a hard line approach and say they shouldn’t, I think most people are a bit kinder than that. In addition societal health like societal education has network externality effect in that society as a whole benefits from a better educated and healthier populace.
As for people paying more for being unhealthy. This is obviously a more gray area. I firmly believe that people need to be given incentives to do the right thing, i.e. not smoking, maintaining a healthy weight. There is no difference in the end making unhealthy people pay more vs. giving discounts to healthy people. That said, this could be dangerous territory in this day and age. Do we make people who are genetically predisposed to some disease pay more? Or deny them insurance completely? Obviously it’s cheaper for the lucky healthy ones, but taken to it’s extreme it defeats the whole point of risk pooling that is the basis of insurance.
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.
You have to consider that since they die sooner that they pay premiums for a shorter period of time.