Sunday, February 26, 2006

Reforming Health Insurance: Cream Skimming vs. Responsibility

The Wall Street Journal carried an article last week featuring a South African life insurer which offers the equivalent of "frequent flyer" points to customers who engage in healthy activities. Without reprinting the entire piece here, suffice to say, the insurer rewards various activities, such as exercise, checkups, and other activities shown to be related to better health, with points which may be redeemed for various things, such as inexpensive stays at resorts, etc.

This insurer is now entering the US market with its programs. As might be expected, the company is being accused of "cream skimming," both in its home country, and in this one. Essentially, sceptics believe that this insurer seeks to hold costs down by insuring only the healthiest individuals, thus avoiding expensive claims which would depress profits.

This brings me to the point of this post. The salient issue of this situation is, quite simply, responsibility. Who is responsible for poor health? For disease? And, thus, who should pay for the condition?

What is wrong with incenting people to behave in healthier ways? Nothing. Merely incenting me to exercise more, not become obese, etc, is good for me, and the insurer.

Clearly, the key question is something more along the lines of the following example. Suppose a child is born with a serious disease which cannot be "cured." The child will be ill, and nonproductive, in the sense of being capable of living as a self-sustaining individual. Who is "responsible," who should pay for that outcome? If an insurer chooses not to underwrite that child, or the adult with the child, is that "wrong?"

It seems to me that the general notion that "cream skimming" is bad always revolves around this question. Whether it involves private (Catholic) education, driving, or health, the real issue is how to distribute the real cost of high risk in society.

It seems to me that perhaps there is a better approach than the binary "all or none." Perhaps each person, or family, should be insured by society, i.e., government, at an agreed-upon level of "benefit," or claims, reflecting the probabilities that they will incur specific uncontrollable diseases. In addition to that, one may purchase, as available, private insurance. This at least acknowledges the reality of the occurrence of such diseases, and offers a minimal level of support for same.

There are, of course, a host of complications. How do we define these diseases? Which ones qualify? Does DNA testing mean there will be no effective private underwriting of such additional risk? Does it even go so far as to suggest that society may withhold coverage from individuals with unacceptably high probabilities, as predicted by DNA samples, of producing children with these diseases or conditions?

These are serious moral and economic questions for any society. How we choose to allocate our resources, in a world of competing national economies, is not a trivial question or topic.

Thus, the question with which this note opened, that of "cream skimming," is a much deeper one than it may initially appear. How we view the answer to this question suggests how we view answers to the deeper related questions of responsibility for situations which may be, for now, uncontrollable. It seems to me that exploring the answers to these questions is a good thing. Simply demonizing those who offer products and services from one vantage point is not.

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