In Praise of Discrimination in the Health Insurance Market

No-discrimination insurance isn't insurance. It's welfare.


I'm scared.

I fear that even if the Supreme Court overrules most of Obamacare (or did already, by the time you read this), Republicans will join Democrats in restoring "good" parts of the law, like the requirement that insurance companies cover kids up to age 26 and every American with a pre-existing condition.

Those parts of Obamacare are popular. People like getting what they think is free stuff. But requiring coverage to age 26 makes policies cost more.

Even Bill O'Reilly lectures me that government should ban discrimination against those with pre-existing conditions. Most Americans agree with him. Who likes discrimination? Racial discrimination was one of the ugliest parts of American history. None of us wants to be discriminated against. But discrimination is part of freedom. We discriminate when we choose our friends or our spouse, or when we choose what we do with our time.

Above all, discrimination is what makes insurance work. An insurance regime where everyone pays the same amount is called "community rating." That sounds fair. No more cruel discrimination against the obese or people with cancer. But community rating is as destructive as ordering flood insurance companies to charge me nothing extra to insure my very vulnerable beach house, or ordering car insurance companies to charge Lindsay Lohan no more than they charge you. Such one-size-fits-all rules take away insurance companies' best tool: risk-based pricing. Risk-based pricing encourages us to take better care of ourselves.

Car insurance works because companies reward good drivers and charge the Lindsay Lohans more. If the state forces insurance companies to stop discriminating, that kills the business model.

No-discrimination insurance isn't insurance. It's welfare. If the politicians' plan was to create another government welfare program, they ought to own up to that instead of hiding the cost.

Obama—and the Clintons before him—expressed outrage that insurance companies charged people different rates based on their risk profiles. They want everyone covered for the same "fair" price.

The health insurance industry was happy to play along. They even offered to give up on gender differences. Women go to the doctor more often than men and spend more on medicines. Their lifetime medical costs are much higher, and so it makes all the sense in the world to charge women higher premiums. But Sen. John Kerry pandered, saying, "The disparity between women and men in the individual insurance market is just plain wrong, and it has to change!" The industry caved. The president of its trade group, Karen M. Ignagni, said that disparities "should be eliminated."

Caving was safer than fighting the president and Congress, and caving seemed to provide the industry with benefits. Insurance companies wouldn't have to work as hard. They wouldn't have to carefully analyze risk. They'd be partners with government—fat and lazy, another sleepy bureaucracy feeding off the welfare state. Alcoholics, drug addicts and the obese won't have to pay any more than the rest of us.

But this just kills off a useful part of insurance: encouraging healthy behavior. Charging heavy drinkers more for insurance gives them one more incentive to quit. "No-discrimination" pricing makes health care costs rise even faster. Is it too much to expect our rulers to understand this?

Of course, the average citizen doesn't understand either. When I argue that medical insurance makes people indifferent to costs, I get online comments like: "I guess the 47 million people who don't have health care should just die, right, John?"

The truth is, almost all people do get health care, even if they don't have health insurance. Hospitals rarely turn people away; Medicaid and charities pay for care; some individuals pay cash; some doctors forgive bills. I wish people would stop conflating the terms "health care," "health insurance" and "Obamacare." Reporters ask guests things like: "Should Congress repeal health care?" I sure don't want anyone's health care repealed.

Reporters also routinely called Obamacare health "reform." But the definition of reform is: making something better. More government control won't do that. We should call politicians' insurance demands "big intrusive complex government micromanagement."

Let the private sector work. Let it discriminate.

John Stossel (read his Reason archive) is the host of Stossel, which airs Thursdays on the FOX Business Network at 9 pm ET and is rebroadcast on Saturdays and Sundays at 9pm & midnight ET. Go here for more info.

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  1. Love you ‘stache-man, but this is counterproductive. I’m pretty sure you can make about a thousand arguments that insurance regulation, national healthcare and all the other statist meddling is untenable, unsupportable and ridiculous without saying that insurance companies should be allowed to discriminate. I mean obviously they should, but a reasonable person can infer that, and a non-reasonable person will just turn into a ‘OMG DISCRIMINATION’ werewolf, which kind of defeats the purpose of writing about this sort of thing.

    And also, yes, the 47 million people who don’t have health care should just die. Along with anyone who lies and says they give a crap about them.

    1. Healthcare under a true free market as advocated by Libertarians would cost a lot less than what we have today. Take prescription laws. Without prescription laws I can control my blood pressure for $40 a year total cost. Control my cholesterol for about $80 a year. No doctor required if there are no prescription laws. With prescription laws you can add a minimum of $200 dollars to that $120 required. This is just one example of how a true free market lowers costs!

      1. Agree with this comment. Under a true free market, health insurance costs would be as low as possible and be much cheaper than today. Not only would insurance cost less, prescription drugs and medical care would cost less as well.

  2. I think it was in Belgium where some men went to the EU courts claiming that cheaper car insurance for women was discrimination, and they won the case !
    So now insurance companies are not allowed to discriminate between an old granny and a young man driving like most young men drive.

    1. British Columbia has a car insurance system like that.

      You get quoted a premium based on the car you’re insuring and where/when/how it will be driven. The insurer can’t adjust the premium based on your age/gender/marital status/education etc.

      But they can and do adjust your premiums for your own personal driving history (collisions, claims, traffic violations).

      1. Yes, but a young guy who just started driving does not exactly have a driving record, but statisically they are the high risk group to insure.

      2. But they can and do adjust your premiums for your own personal driving history (collisions, claims, traffic violations).

        That’s discrimination based upon preexisting conditions! OMG!

    2. So now insurance companies are not allowed to discriminate between an old granny and a young man

      I’m not convinced that an old granny is necessarily any better than a young man when it comes to safe driving. Speed isn’t the only thing that determines safety and faster doesn’t necessarily mean less safe.

      Anyone who’s seen an old woman putzing along at 25mph below the speed limit, with their turn signal on, barely able to see over the steering wheel, weaving back and forth in her lane, and cutting people off would likely agree.

  3. “On a long enough timeline, the survival rate for everyone drops to zero.” – Tyler Durden

  4. The problem is that insurance is what is called a ‘sucker bet’. The insurance company wouldn’t agree to pay out under certain conditions if they weren’t actuarially sure that they would take in more in premiums than they would pay out in claims. That’s simply how insurance works. People SHOULD buy insurance because they want to be certain that if some long shot disaster befalls them they will be able to get through. Instead people behave as if insurance companies were supposed to be benevolent organizations. Which is how so much of what insurance companies do ended up being done by the State in so many countries all over the world.

    No company owes you a degree of service that will certainly bankrupt it. There Ain’t No Such Thing As A Free Lunch.

    So go crying to the State, but don’t blame me for what hapens;

    The State will charge all it can get away with, because it doesn’t have to sell you coverage it just has to collect taxes. At gunpoint. The State will deny your claim if it thinks it expedient and it can come up with an excuse – say, your condition is a sexually transmitted disease and that’s voluntary behavior, or your real problem is that you are fat. The State will find a way to chisel, and will have MUCH higher overhead. After all, you can’t go anywhere else, neh?

  5. A side effect of this no discrimination concept is that the government will be forced into ever more micromanagement of peoples lives. To keep their insurance schemes solvent fat people must be made to lose weight, drinkers must be made to drink less, stressful jobs must be made less stressful and so on. Sadly some people would call this a feature and not a bug.

  6. Living in MA with the Romneycare mandate, it’s pretty much impossible to buy health insurance that actually is insurance. Since my husband is being forced to buy health insurance, we went shopping for catastrophic care coverage, which is all he really needs or wants. Guess what? That’s not allowed under the state mandate. So instead of being insured, he’s paying hundreds of dollars a month for other people to go to routine medical appointments, which doesn’t really fit the concept of “insurance” as I understand the term.

    1. If I remember correctly, Obamacare also ruled out things like high deductible plans coupled with HSAs since they aren’t “real” insurance.

      Also, I’m in MA as well and as a healthy 23 year old male, I’d love to get on a catastrophic coverage plan and then pocket the difference in premiums.

    2. This is, IMO, the biggest problem with the insurance mandate (well, other than being completely unconstitutional). The mandate isn’t just “you shall have a health insurance policy”, it’s “you shall have a government approved health insurance policy”. And then there’s all kinds of coverage that you not even need or want. It’s fucking ridiculous.

  7. No-discrimination insurance isn’t insurance. It’s welfare.

    Noting more need be said. Anyone believing otherwise is a looter/moocher.

  8. Why is it that industry is so quick to make the Faustian bargain? I agree that, a priori, bigness has nothing to do with quality of a business, but does it not seem that the bigger a company gets the more ossified it becomes and the more likely to retain lobbyists and convert it’s once successful business model of acquiring market share into one of protection/extortion racket?

  9. You think you are wise, John Stossel. Yet for all your subtleties, you have not wisdom.

  10. The truth is, almost all people do get health care, even if they don’t have health insurance.

    Of course this is a giant copout. I’m sure someone will let me know if it’s a strawman to claim that you feel that the market should just take care of all healthcare. But your apology for lack of access is to put up a few noncapitalistic reasons people don’t actually go without care.

    Everything you’ve written here is an argument for why government has to be involved in healthcare.

    1. Medicaid and charities pay for care; some individuals pay cash; some doctors forgive bills.

      Of those options, only one is a state-provided “noncapitalistic” reason people don’t go without health care. I know you’re really, really stupid, Tony, but surely even you can understand that paying someone cash in exchange for a service, voluntarily forgiving a debt, or voluntary donating money to a health care charity is not “noncapitalistic”.

      1. surely someone with your intellect, then, can allow for the interpretation that only one of Tony’s examples involves someone actually paying for the service they receive. the other options involve shifting the cost to others. this may or not fall under the purview of “capitalism,” but your condescension is all the more laughable when you fail to grasp the point you criticize, even if there may be a difference of opinion on the semantics.

  11. The insurance don’t want to discriminate with the actuarial tables so much as they want to stay profitable. If they can be assured that their competitors will cross-subsidize women by overcharging men (or overcharge young people to pay for middle-aged people) then they’re happy to go along and avoid the bad optics.

    The idea a lot of people have is that the insurance companies are bad actors being regulated into decency. But it’s more like if it were legal to charge men less than women, some insurance companies would do it and the overchargers would lose business. So they’re fine with nondiscrimination as long as every competitor is barred from taking advantage of the situation.

  12. This our problem. We argue logic, and politicians argue emotion. People respond to emotion more than logic. So, conflating terms is useful, as people generally don’t follow logical details. I get plenty of flag waving e-mails from the older people, moaning over Obama’s birth certificate, and that he’s a socialist. Comments from people much younger are just as inane and banal: “heartlessness” of over turning “healthcare” yada yada yada. Send them the nuance of the debate around the living constitutionalists, Wickard vs Filburn, the expansive interpretation of the commerce clause — blank stares, anger, or silence. I guess my shits all retarded and I talk like a fag.

  13. I’m afraid this stuff passes and keeps hold because tons of people are too stupid to even understand that risk-based pricing is the only way the price of insurance can be reasonable

  14. Well, yes and no. As usual, not everything is as black and white. Health insurance is not like car insurance, household insurance, or even life insurance (all three discriminate into risk buckets).

    If Jimmy-bob’s house burns down the rest of us aren’t responsible for his costs if he has no insurance. If he needs medical care and has no insurance, the rest of us pick up the cost.

    If 60y.o., middle class, Dwayne has a heart attack, it is cheaper for society to back him with heathcare than it is to have him drain his bank account to eek out a meager existence on the public welfare system.

    Certainly people should see the cost of a risky lifestyle reflected in their insurance rates, but that “extra” cost needs to be only high enough to effect action.

    Personal responsibility is paramount… or is it? As usual, broad sweeping generalizations are easy to topple. Were do we balance personal responsibility and the good of society?

    1. Where do these people come from? I thought the entire premise for registration was to eliminate all but the most dedicated and pernicious trolls i.e. shrike, tony, etc.

      1. Because the most useful and free discussion forum is one that discourages disagreement.

    2. Actually, all insurance is exactly like all other insurance. Choosing to redefine the term “insurance” in one particular field because we as a society have collectively decided that insurance is cold hearted and icky when it deals with health care is perhaps convenient, but not accurate.

      If Jimmy-bob’s house burns down the rest of us aren’t responsible for his costs if he has no insurance

      So we pass a law tomorrow making us all responsible and magically home owner’s insurance is exactly like health insurance. And now we need a mandate, because you aren’t going to let Jimmy-Bob go bankrupt rebuilding his burnt down house are you! Are you! You cold hearted prick! Where do we balance personal responsibility and the good of society?

      I say, and I quote, Fuck off slaver!

      1. you don’t have to have a bleeding heart to not want a burnt-out house next door that no one can afford to repair, except the municipality (at taxpayer expense of course).

  15. Comparisons between auto and health insurance don’t hold water.
    People may want to drive, but eventually everyone needs doctors.

    JS, you sure seem to care about the rising costs of health care. When an uninsured individual goes to the ER, it’s the most expensive form of healthcare there is. When that person doesn’t pay, the hospital then increases costs to every else that does pay their bill to offset the charge-off. There are two ways to prevent this scenario: empower the hospital to tell the sick or injured person to fuck off, or require that people bear the responsibility of their own health care costs.

    The first post here says:
    “And also, yes, the 47 million people who don’t have health care should just die. Along with anyone who lies and says they give a crap about them.”
    Nice. I realize it’s likely that several here agree with that sentiment, but you should care about them. Not because of any morals that good people should inherently have, but because the uninsured increase your health care costs, like it or not.

    1. Agreed. The uninformed majority fail to realize that healthcare for everybody is available… mandated by law. No insurance? You get medical care. It is the vast middle class that should be cheering today’s decision… the people who are one lay-off from being refused coverage.

      1. So the solution to the government destroying a free market with mandates is more government mandates to make the market even less free. Gotcha. Makes totally perfect sense. Since you’re already here, give this a read: https://reason.com/archives/201…..d-to-new-s

        1. The insurance industry is not a free market.

  16. John,

    I am a big fan, but your argument here is weak.

    Essentially you are saying

    Bad Discrimination: Racial
    Good Discrimination: Auto Insurance, Flood Insurance

    So, how do these two groups differ. The “Bad” category reflects discrimination based on things that we are born with and have no control over. The “Good” category reflects discrimination based on our behaviors (how we drive, where we buy houses).

    So, those categories seem apt. Now, which category does health fall into. I would argue that getting cancer, parkinsons, alzheimer’s, etc are at least 90% beyond our control. Even heart disease has a large genetic component. By this argument, health care would seem to fall in the Bad to Discriminate group, wouldn’t it?

    1. I guess that hit run (pun intended) driver permanently injuring me while I was driving from school to work 5 in the middle of the afternoon 5 years ago would make me fall under the “good” discriminating type because I wasn’t born with it. Yay!

  17. “Government Incorporated”

    Corporations are people!

  18. East Germany missed the muscle car era.

  19. Poor Daniels doesn’t know how to respond to Stosselcasm.

  20. “You’re either for this bill or you’re for the tollroadorists!”

  21. Ha, these guys look the union part through and through.

  22. Yeah but Indiana has “indian” in the name, so it’s pretty racist. That name has to change.

  23. “The fruit hangs pretty low in government…”

    Is that a shot at gay marriage, or a compliment of some type?

  24. The internet has screwed everything up.

  25. Why did Stoss bring the Colonel out of cryogenic freeze to talk about trains? The transcontinental railroad wasn’t even completed when he was alive.

  26. Kucinich vs. Bolton! Let’s watch…

  27. The automatic pilot defense spending crack sure dropped a nickel in Bolton’s slot.

  28. The answer to the question of how to best defend America apparently doesn’t involve a choice.

  29. Clint is the winner of the Mike Huckabee look-alike contest.

  30. This just in: John Stossel pines for the return of the USSR.

  31. Car insurance works because companies http://www.lunettesporto.com/l…..-3_12.html reward good drivers and charge the Lindsay Lohans more. If the state forces insurance companies to stop discriminating, that kills the business model.

  32. Car insurance works because companies reward good drivers and charge the Lindsay Lohans more. If the state forces insurance companies to stop discriminating, that kills the business model.

    No-discrimination insurance isn’t insurance. It’s welfare. If the politicians’ plan was to create another government welfare program, they ought to own up to that instead of hiding the cost.

    1. The cost of poor lifestyle choices is more than a dent in the pocketbook. There should be consequences to poor lifestyle choices… before the health affects take place. But life has more value than to be thrown on the scrap pile just because you are stupid.

  33. I wish people would stop conflating the terms “health care,” “health insurance” and “Obamacare.” Reporters ask guests things like: “Should Congress repeal health care?” http://www.zonnebrilinnl.com/z…..-3_22.html I sure don’t want anyone’s health care repealed.

  34. I usually agree with you, John Stossel, but on this matter you are not correct. Discrimination causes hardship for people, no question. Especially when dealing with corrupt insurance companies and an even more corrupt government.

    Take me, for instance. I am “uninsurable” according to about 35 different companies with which we’ve checked. Through, really, no fault of my own. When I was pregnant with one of my three children, I developed a *murmur of pregnancy* which the doctors told me would go away after the birth of the baby. No such luck. It is now termed a “prolapsed mitral valve”. I have had EKG’s and echocardiograms a couple of times in the past 25 years, but nothing has changed (and, uh, this isn’t something I can fix by changing my lifestyle, sorry) and for that reason, they won’t insure me because they tell me when I get older I’ll need corrective valve surgery. My doctor says no, I don’t. This is a very insignificant thing, according to him. The insurance company acts like I’m going to keel over any minute now! AND – I’m the one who has to put up with the pounding, banging, heart-in-my-throat feelings, but it really IS insignificant because I don’t need to take antibiotics before dental procedures, as do many people with this condition. (CONTINUED BELOW)


    However, I do have to take a beta-blocker for the rest of my life to control the heartbeat/pounding. When it pounds, it raises my blood pressure and that’s not a good thing.

    So, in order for me to be insured, my premiums would be around $1,500 per month. Really? I’ll put half that much away under my mattress every month and hope I never need to spend on our bogus health care (read: sick care) industry, nor our bogus insurance industry. If you ain’t in perfect health, you don’t GET insurance and if you got insurance WHILE you were in perfect health, at some point you are gonna end up with a bigger premium and you can count on it. My husband and I are both self-employed – there is no group insurance thing here.

    Any suggestions for me?

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