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> Pushing them into some kind of not-for-profit

Health (and perhaps life) insurance should be not-for-profit, period. Healthcare providers in general should also be either nonprofit, or they should be mandated to publish their prices and stick to them, so that transparent competition exists in the marketplace.

I’m not saying I disagree, but what’s your argument that life insurance should be nonprofit?

Insurance companies that make a profit are strongly incentivized to maximize premiums and find excuses not to pay claims, which is exactly what TFA suggests. Doing these things is exactly what gets you a nice bonus if you're a manager at an insurance company. A non-profit organizational structure removes such personal incentives for customer abuse.

I don't think that's how risk pools work in the first place.

The idea is not to put people with similar levels of risk in the same pool. The idea is to make the pool as large as possible, charge everyone for their expected cost + a margin, and then pay out everyone for their actual costs.

It's the law of large numbers at work here. Take the mean value of a large number of variables with high variance and you end up with a mean that has low variance.

Not only is it normal for people with condition X to be in the same pool as condition Y, but this is a good thing because the costs for people with condition X are less correlated with the costs for people with condition Y, and this reduces risk in the pool. For example, if you have a pool that only contains people with condition X, and then it turns out that a commonly used medication prescribed for condition X has horrible side effects, then that single problem is disastrous for the entire pool.

> Why should a profit-seeking insurance company insure me past some point when the data strongly indicates i'm going to need drastic and expensive intervention.

Because you pass laws that make it illegal for insurance companies to deny coverage on this basis, and then you turn around and pass laws to keep the pool healthy enough for insurance to still be profitable. Or you just nationalize it.

Isn't what you describe in the first three paragraphs of your comment the same system as what the person you're replying to outlined in their first paragraph? It seems to me like you stated you don't think the parent commenter's outline of risk pools is accurate, but then went on to describe the same system.

How is it different? Both of you are talking about risk pools consisting of large groups of people with different risk profiles for different healthcare liabilities. The commenter you replied to seems to be talking about this concept breaking down as insurance companies increasingly slice risk pools down such that their profit depends less on understanding the mean and more on predicting the future.

That being said, your last point sounds like a decent proposal for how to combat this problem. I'm not sure if it would work in practice, however, as healthcare legislation seems to be hotly contested on all sides.

> The idea is not to put people with similar levels of risk in the same pool. The idea is to make the pool as large as possible, charge everyone for their expected cost + a margin...

As a consumer who is fortunate enough to get life insurance at the "Super Preferred" low-risk rate, I would prefer be in a small pool that excludes people with higher actual costs. That's an economic preference, not moral, though my morals are not bothered by using the system as designed.

As long as insurance companies are free to offer plans that admit only really healthy people and exclude people with higher actual costs, my plan will be cheaper. Really healthy people will drop out of the larger pool and into the cheaper pool. The larger pool will, as a result, get more expensive. And the people remaining in what's effectively the shallow end of the pool will be offered a "Preferred" rate that's more expensive than super preferred but less than the large pool.

Eventually you end up with small risk pools, with the least insurable, highest-risk and highest actual cost customers unable to buy affordable life insurance. If you're a 20-year-old obese diabetic who smokes and has a family history of cancer, and the actuarial table says there's a 50% chance that your 50-year $1M policy will have to pay out, your premiums before a margin are 1M * 50% / 50 / 12 = $833/month. That's not really affordable, even if it would be wise for our unhealthy friend if he or she has dependents. My super-preferred policy costs me $21.25/month.

I empathize with the plight of the uninsurable. Given my voting history on health insurance issues, I would probably vote in favor of a law that limited segmentation and would bump my premiums to, say $50/mo and would offer life insurance to the $833/mo individual at the same rate. But I'm not going to jump from my pool into a more expensive pool by myself if that signal will fall on deaf ears.

"I sympathize with their problem but I won't disadvantage myself just to help them"

In Europe I believe that insurance already may not discriminate on sex: compared to women, men's car insurance got cheaper and retirement annuities got more expensive, when this began.

Why wouldn't we just extend this to cover more things? We are free to design what kind of insurance market we wish to have. For-profit companies don't have to be operating in some kind of absolute free-for-all.

>In Europe I believe that insurance already may not discriminate on sex: compared to women, men's car insurance got cheaper

That's false. After EU came meddling insurance was raised for men to the same level women had even though men have statistically lower risk of accident.

That's odd. Here in North America I believe most insurance companies charge men more than women as they have a higher risk of serious accidents.

You've probably heard of the phrase "There are three kinds of lies: lies, damned lies, and statistics."

So, I think (though I will admit it was long ago last time I looked this up), that men have a lower accident rate per mile driven but have a higher accident rate per time period (not time period driving). The reason is that men drive more (or at least use to, back when I read these statistics).

There is also the difference between different kinds of accidents. While per mile driven men have less accidents than women, they tend to, as you mentioned, be worse accidents. I forget if this actually made them cost more per mile driven or not, but once you also add in that they drive more, in a given year men do cost more and are charged more. (There is also the impact of younger men who have more thrill seeking behavior, so if you compared men and women within a specific age group you might find the statistics don't match the statistics across all age groups.)

So, thanks to the beauty of statistics, we can say that men are better drivers than women and men are worse drivers than women by using slightly different definitions of better or worse that, in layman English, are glossed over.

> they tend to, as you mentioned, be worse accidents.

This reminds me of red light cameras. People love to complain that they only exist to make money because they statistically cause more accidents. And it's true, they do cause an increase in total number of accidents. But they decrease the number of serious accidents. You get more rear end collisions, but fewer T-Bone collisions which tend to be much more serious.

Could depend on the age group and driving record. In some age groups men can be overly aggressive drivers but overall less accidents compared to women.

For the person who downvoted OP was referring to the EU. Previously men paid less but when EU decided statistics are sexist now both pay the same higher amount. Yay for the consumer

Anyone got data? Prices change over time.

The best I could do in 5 minutes googling was newspapers complaining that, on average, men still pay more... because they drive (on average) further, in more expensive cars.

And rumours that they are setting the rates for different professions as a way to get around the rule... huge differences like this:

    Dental Nurse Less than 1pc male £840 
    Solicitor 59pc male £848 
    Sports and leisure assistants 56pc male £880 
    Civil engineer 92pc male £910 
    Social worker 21pc male £920 
    Plasterer 98pc male £950

I had an idea that retirement annuities etc, which are a much bigger deal, were much more regulated & could only price based on a few numbers. But I don't have a link.

It was big news at the time in Europe as it affected vast amount of people's bottom line (mine as well). Would be interesting to know if it was lobbied to some extend.

The premise was that women would pay the same amount as men lowering the rate (Good thing). But for everyone who have followed politics knew it's not going to be a so simple. You have countless of examples where companies just skirt around the law and it end up hurting consumers.

Pretty much sums many EU decisions. On paper they can seem decent enough but in reality not so much. And women were affected as well as you might imagine low income families took the biggest relative hit.

> Why should a profit-seeking insurance company insure me past some point

Seems like a good argument for single payer insurance.

I think it's an argument for very large non discriminating risk pools.

The biggest being one large risk pool that all citizens are a part of.

Seems like a good argument for single payer insurance!

Not necessarily. You can have multiple insurances compete over the whole country.

And they compete on which can most successfully discriminate without getting caught. What's the point?

No discrimination. You take anybody or you are out of the market.

What is the motive then for a for-profit company to even exist? If every insurance company has to take everybody, that implies they have to also provide the same coverage to everyone at the same rate. Barring cartel-like collusion, which is already illegal, the market price would quickly converge towards the cost of insurance. There would be basically no upside, but almost unlimited downside.

"What is the motive then for a for-profit company to even exist? If every insurance company has to take everybody, that implies they have to also provide the same coverage to everyone at the same rate. "

Correct. And whoever is more efficient wins. That's no different from any other retail business. My grocery store sells lettuce to anybody. Some are more efficient and can offer better prices. Or they sell better lettuce. But regulation sets minimum requirements so nobody can sell fake or toxic lettuce.

I thought that's how the market works.

"More efficient" in this case meaning whoever can discriminate the most, and whoever can deny the most claims without getting caught.

That can be checked by enforcing regulations. Grocery stores don't compete over circumventing food safety regulations.

Yeah, this idea of comparing insurance companies to grocery stores doesn't really fly.

Why not? Both have to operate within rules as long as they are enforced. So if the rules tell them to not discriminate they have to follow them or face consequences.

Because the upside to these companies has a pretty low ceiling, especially if there is downward price pressure because insurance companies can't differentiate on risk or coverage. This leads to very thin profit margins.

However, due to the nature of insurance, even a relatively small number of people developing expensive conditions can be catastrophic. Remember, in your scenario, you are REQUIRED to cover them.

If you're going to have only one combined risk pool, you need to be able to guarantee coverage even facing catastrophic insurance costs. The only real way to do this is to be backed by somebody with very, very deep pockets, like, say, the federal government.

Having worked in a grocery store, I know that's not true.

There are certain features of insurance that make it very different from other products - competition does not necessarily lead to optimum outcomes with insurance.

Checkout adverse selection and moral hazard.

Insurance is a misnomer for such a scheme - premia aren't priced according to actuarial risk. The scheme only works because the low risk young have to join and subsidise the higher risk old.

Knowing more about risk pools does not change the rate of deaths. So, for everything negative you learn someone else ends up in a more positive light as the overall average does not change.

Now, if we find a lot of negative things about one person their premiums might become unaffordable but otherwise it's not a big deal for the industry.

> Why should a profit-seeking insurance company insure me past some point when the data strongly indicates i'm going to need drastic and expensive intervention.

They shouldn't.

that is why the private sector cannot alone supply medical insurance

>As I understand it, the entire concept of insurance is based around gathering relatively large groups of people with a solid understanding of their average risks for certain types of loss. Given the averages hold accurate over time, those that need a payout can get one, and the insurance company makes money in aggregate.

>However, the better the insurance companies can understand our risk profiles as individuals (going well beyond age/sex/smoking/etc/etc/etc) - eventually (in theory) a motivated insurance company is going to be able to determine that I have a 90% chance of developing Serious Syndrome X while you have a 97% chance of developing Minor Issue Y.

Even as predictive models improve, insurance will always rely on risk pooling. Even if you believe that insurable events like death are completely deterministic, insurers' information will always be imperfect. So models will always have an epsilon (noise) term, which is diversifiable.

>Today we might get put into the risk pool. But as the science advances, the risk pools can be cut into finer and finer (and more accurate) risk pools. Why should a profit-seeking insurance company insure me past some point when the data strongly indicates i'm going to need drastic and expensive intervention.

Because they will still profit on average if they charge you more than the expected value of claims. Insurers have historically been hesitant to insure high-risk individuals for any price, in part because they're not confident enough in their ability to accurately quantify the risk associated with them. I'd argue that more granular and accurate rating will actually improve high-risk individuals' access to life insurance for that reason. Edited to add: I suspect that the same would be true of health insurers, though that's currently moot in the US due to the ACA.

>It seems like the three ways to avoid this are: 1. "Advances" like the one mentioned here don't turn out to have enough predictive power and insurance continues to operate much as before 2. Some people just can't get for-profit insurance, at least not for health coverage (I'd think accidents will always remain much harder to predict than e.g. heart disease). Pushing them into some kind of not-for-profit 3. Regulation forces blinders on to underwriters essentially saying "actuarial science advances to here and no further"

The status quo is mostly #1 for life insurance, and I'd contend that it's likely to stay that way for the foreseeable future. Health insurance is squarely in bucket #3 in the US, but who knows how long that will last or where it will go from here.

N.B.: I'm a (non-credentialed) life actuary.