Health Insurance: The Great American Bailout

Let’s have a discussion the politicians want to avoid because they don’t want to make difficult decisions. A discussion the insurance executives avoid because they need the politicians on their side. A discussion physicians and other clinicians avoid because they don’t want to be labeled as insensitive or not empathetic.

Let’s talk about allowing insurance companies to adjust insurance premiums based on risk. No, I’m not talking about charging someone a higher premium because they were born with cerebral palsy. I’m not suggesting we hike the rates of someone who develops cancer, contracts HIV, or otherwise has a pre-existing condition. And I’m not recommending we charge women more for insurance because of the costs associated with pregnancy.

I’m suggesting we acknowledge that we as individuals have simple ways we can improve our health, and thereby reduce the costs of our healthcare; but by not doing so, we directly contribute to higher health insurance premiums. Any reasonable physician or other well-informed health expert will tell you that the obesity, tobacco use, illicit drug use, and alcohol abuse are collectively the most prevalent reversible risk factors for morbidity, mortality, and excess costs of care in our healthcare system. What the general public, the politicians, and organized medicine don’t want to talk about is the fact that the accountability for these risk factors lies with the individuals.

We live in a society that, unfortunately, accepts and promotes bailouts. We bail out businesses and industries that take on excess risk. We are on the verge of bailing out students who made poor career choices by broadly cancelling their student loans (without regard to completing their degree, or the socioeconomic value of their path of study). Our federal government bails out fiscal irresponsibility of state and local governments through grant programs, tax laws, and various relief programs. Heck, the federal reserve even bails out the fiscal irresponsibility of our federal government by printing money and ‘quantitative easing’ to fund perpetual deficit spending. Bailouts perpetuate reckless and irresponsible behavior because the lack of accountability removes the incentive to change behavior. We are a financially unhealthy country because we bail out unhealthy financial habits. The same is true in health and healthcare.

To be blunt: America is unhealthy because we bail out those with unhealthy habits.

Before we go further, please take a few deep breaths and release any emotional attachment you have to this topic. We all have friends and family with expensive health issues. We all have friends and family who are obese. We all have friends and family who smoke. And we all, probably, have friends and family who at some point used illicit drugs or abused alcohol. Playing the percentages, you probably checked one of these boxes yourself at one point in life – I know I have. Let’s put that emotional attachment aside and have a pragmatic discussion.

Question #1: If everyone paid the same car insurance premium regardless of their driving habits, and insurance companies weren’t allowed to deny individuals car insurance, what do you think would happen to the overall premiums?

Question #2: Why is health insurance different?

You see, insurance carriers adjust car insurance premiums based on a number of characteristics. I’m no expert on insurance risk, but my common sense approach puts these risk adjustments into three categories:

1. Individual characteristics

2. Claims

3. Behavioral characteristics

I believe health insurance premiums should be adjusted based on all three in select circumstances, just the same way car insurance premiums are adjusted across these three categories. So let’s walk through each.

Individual characteristics are factors such as age, sex, car color, car value, car style, geographic location, and car use, to name a few. Yet, I don’t see anyone continually obsessing about the age and gender “discrimination” that takes place in the car insurance industry whereby young drivers and males pay higher premiums than middle-age and female drivers based on risk modeling. In healthcare, some premium adjustments are allowed in this regard. Age adjustments are generally allowed, but only to an extent. The Affordable Care Act limits this age adjustment to thrice that of a 21-year-old, and some states impose even more restrictive age bands. For example, Massachusetts allows age adjustments, but they can’t exceed more than twice that of a 21-year-old. I wonder how happy a 60-year-old would be to know her car insurance can’t legally be less than half the premium paid by a 17-year-old (answer: she wouldn’t be happy about her premium increase)…

Claims-based premium adjustments are even more controversial across all types of insurance. The fear of being ‘dropped’ from a plan after a claim is very real – whether we’re talking car insurance, home insurance, or others. I recall being dropped from my condo insurance policy after a claim due to a plumbing leak when I was in my early twenties – very frustrating. Obviously, I’m not advocating that insurance companies be given extreme latitude to make significant adjustments based on utilization of resources. After all, there is clear data that we should be encouraging certain types of utilization (such as preventive care), and we don’t want to scare people away from seeking the care they need. On the other hand, why does the healthy 27-year-old single father trying his best to do the right thing have to bear the financial burden of the 62-year-old with end-stage COPD on home oxygen who is now on her 15th hospitalization this year because she continues to smoke? True story, it happens all the time.

This brings us to the root cause of the majority of our unhealthiness and excess healthcare costs.

Behavioral characteristics are factors, such as moving violations and creditworthiness, in the car insurance marketplace. Can you imagine the social and political outrage if missing a credit card payment made your health insurance premiums more expensive? Crazy to think about. But let’s focus on those moving violations – I don’t know anyone who disagrees with insurance carriers having the right to raise premiums if an individual receives speeding tickets or is convicted of driving under the influence. These are issues that directly affect the safety and prosperity of the general public, and the financial consequence of higher insurance premiums is one way to encourage safe and healthy driving habits.

This is, conceptually, no different than holding individuals accountable for the physical health behaviors that directly affect the prosperity of the general public. The four obvious behavioral characteristics are as previously mentioned: obesity, tobacco use, illicit drug use, and alcohol abuse.

Currently, only one of these four behavioral characteristics is broadly accepted in its use to adjust insurance premiums (tobacco use -- up to 50% adjustment), and even that characteristic has multiple loopholes (such as Medicare open enrollment period) to prevent premium adjustments. Culturally, we finally moved past the blame game of pointing the finger at tobacco companies and started holding individuals accountable for their smoking. Why are we not holding ourselves accountable for other behavioral factors as well?

Obesity is documented in the clinical setting in a variety of ways, and I’ll be the first to admit that there are significant flaws in using a single number such as Body Mass Index or abdominal circumference, or even body fat percentage, to measure health in this regard; however, there are simple solutions to this detail. Additionally, I recognize that some obesity is not behavioral – there are legitimate medical conditions and medications that lead to obesity. But, focusing on these details is missing the forest for the trees, as the vast majority of obesity is due to calorie mismatch (too much food, not enough fitness). A simple physician visit to document the medical reason for obesity can distinguish behavioral obesity from medical/medication-related obesity; and surely the medical community can settle on criteria for documenting obesity for this purpose. Acknowledging obesity as a behavioral factor in health is not body shaming, lacking empathy, or otherwise being insensitive to individuals – it’s rightfully holding individuals accountable for the decisions that impact their health.

The same is true for illicit drug use. I recognize that we don’t want to scare those with issues here away from getting the help and resources they need to be healthy, but why not hold those who live with reckless abandon accountable for their choices and provide a financial incentive to stay clean? Car insurance companies don’t mandate continuous speed monitoring (although some companies now offer the option to do this), but they do dole out consequences if you’re busted. Is avoiding this car insurance premium hike by going to traffic school any different than avoiding a health insurance hike by going to drug rehab? Notably, there are limits to how many times you can go to traffic school without still bearing the consequences, and the car insurance carrier doesn’t pay for your traffic school – just saying.

Alcohol is more complicated, because unlike tobacco, obesity, and drugs, there is scientific data that suggests some alcohol use can actually be healthy. Abuse is the problem. This makes health insurance premium consequences more difficult to track and adjust. I’m open to ideas, so leave them in the comments.

Here are the take-home points:

1. Any serious conversation about healthcare reform in America must involve open and honest conversations about individual accountability for the behavioral decisions that affect health and thereby costs of healthcare.

2. Obesity, tobacco use, illicit drug use, and alcohol abuse are the primary reversible individual behavioral characteristics that adversely affect health and increase health costs.

3. Disincentivizing tobacco use has momentum (and it’s working), but we need to encourage healthy behaviors by disincentivizing obesity, illicit drug use, and alcohol abuse as well.

Actions for reform:

1. Start by adjusting insurance premiums annually based on obesity status.

2. Bring together appropriate stakeholders to determine the criteria for such premium adjustments (i.e., diagnostic criteria) along with defining the exemptions (i.e., medication-induced obesity).

3. Expand these behavioral premium adjustments to other areas, such as illicit drug use and alcohol abuse, when clear processes are feasible to identify those who stand to be assessed the premium adjustments.