A Geek With Guns

Chronicling the depravities of the State.

Insurance. You Keep Using That Word, I Do Not Think It Means What You Think It Means

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Some health insurance companies have started pilot programs where customers can receive a discount for wearing a fitness tracker and sharing the data with the company. This seems like a pretty straight forward idea. But according to Bloomberg it’s a sinister ploy:

Think about what that means for insurance. It’s meant to be a mechanism to pool risk — that is, to equalize the cost of protecting against unforeseen health problems. But once the big data departments of insurance companies have enough information — including about online purchases and habits — they can build a minute profile about each and every person’s current and future health. They can then steer “healthy” people to cheaper plans, while leaving people who have higher-risk profiles — often due to circumstances beyond their control — to pay increasingly unaffordable rates.

Whenever health insurance companies up I’m forced to explain what insurance is. I shouldn’t have to do this but nobody seems to know what it means.

Insurance is a way for multiple people to pool their resources for risk mitigation. Take home owner’s insurance for example. When you buy a home owner’s policy you’re donating some money to a common pool. Any paying customer can withdraw from the pool if they experience a situation, such as a house fire, that is covered by the insurance policy. Those with higher risks are more likely to withdraw from the pool so they pay a higher premium. Those with lower risks pay less.

Automobile insurance is the same way. Higher risk drivers; such as young males, people who have been found guilty of driving while intoxicated, people who have been found guilty of reckless driving, etc.; pay a higher premium because they’re more likely to withdraw from the community pool.

Most people accept that higher risk people should pay a higher premium for home owner’s or automobile insurance. But when they’re talking about health insurance they suddenly have a change of heart and think that higher risk people should pay the same as lower risk people. That makes no sense. Health insurance, like any other form of insurance, is pooled risk mitigation. If you live an unhealthy lifestyle you’re more likely to withdraw from the pool so you pay a higher premium. Oftentimes these risks are outside of your control, which sucks. However, if the pool empties, that is to say there are more withdrawals than deposits over a long enough period of time to completely drain the accounts, everybody loses their coverage. That being the case, higher risk people have to pay more to ensure the pool remains solvent even if the risks are outside of their control.

It’s not a sinister scheme, it’s exactly how insurance works.

Written by Christopher Burg

February 24th, 2017 at 10:30 am