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Comment by erentz | Hacker News Reader

I would like to see the increasing granulization of insurance put to an end, because otherwise it won’t stop. There should be one pool, everyone’s in it, we spread risk, and the whole damn thing is simpler and easier to regulate. Sure, Mr Base Jumper is going to raise your premiums when he breaks his leg, so what. Maybe he doesn’t drink and so has less health affects than you. Or you’ll raise his premiums when it turns out you carried a gene for disease-X and got it at 45.

What we have now is an ad-hoc nonsensible set of what you can and can’t risk profile on, and every time we learn some new way to risk profile then we’ll have to decide again if we want to regulate it. On top of that this just increases the risk of insurance companies getting it wrong and needing to be bailed out. I’d rather we had a conservative, boring and simple insurance industry and just get off the treadmill.

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Unfortunately “fair” insurance - one where everyone pays the same premium - is an unstable equilibrium without regulation. As others mentioned, self selection without regulation leads to the fair carrier getting the highest risk population, effectively leaving it no money to pay out. It is definitely a race to the bottom.

There is the other unstable equilibrium if insurance is fully fair but non compulsory - it’s participation bias. What’s the benefit of getting insurance now when I can get it right before I go to the doctor (health) or on my deathbed (life)? Obviously at that point there’s no insurance - risk dilution - it’s a subsidy.

Which makes the only way to have fair insurance is to require everyone to have it and enforce very simple underwriting criteria. It will also require most folks to pay more than they could otherwise. Unfortunately the US has historically been bad at attempting to pass a law with that kind of effect, though the ACA got closer than most attempts before the recent changes.

I believe this is more or less how it works in the Netherlands. Insurance is private and not directly paid by the state unless you're under 18 or you cannot afford it (but then subsidy is given to buy private insurance). Insurance is compulsory for everyone. It is well regulated. Insurers compete on premium options, hospital choice, etc.

In practice, monthly insurance premiums are around 110-130eur per month with a minimum deductible of 385eur. GP visits don't cost anything additional and only specialist care eats into the deductible.

We do have a technique for battling the second issue you point out at least: open enrollment periods. Of course they are kind of annoying and aren't generally viewed as acceptable for individual policies.. Maybe the some of effect could be mimicked with coverage start delays and/or extending the minimum length of coverage you can purchase.

If that is what you want then that is okay. You can pay for that type of insurance. I prefer to buy life insurance from a place that will charge me a lower rate because I don't drink or smoke. I assume that most people who don't drink or smoke would join my type of insurance as well, leaving your type of insurance full of drinkers and smokers. That would make your insurance cost more (the insurance is paying more) while mine would be cheap.

Now, if you are talking about requiring everyone to use the same insurance for the same price (maybe a government insurance) then I would want to ban drinking and smoking. Because now their actions directly impact my by rasing my insurance cost.

You can't have both types of insurance. If you try, the one that discriminates less just becomes the highest-risk pool. So telling someone to choose the one they prefer doesn't make any sense.

That's my point. How would you like it if you had to pay just as much in flood insurance as someone with a beach front property in Florida? If I had to, I would try to make beachfront properties in Florida illegal.

The other extreme is a scenario where insurers magically have perfect knowledge about your individual risk and insurance becomes completely pointless.

You will not receive exactly what you pay. Some people will receive much more, and their payouts are subsidized by the others who receive much less. That is the nature of insurance.

What's the difference between your question and "How would you like it if you had to pay just as much flood insurance as someone down the street whose house actually gets flooded next year?" The only difference is that you can't reliably predict things with that level of accuracy.

Insurance companies and low-risk insurance buyers are both incentivized to predict individual risk profiles as accurately as possible, but this gradually drives the system towards uselessness.

One could argue that the social value of insurance is to incentivize you to not take risks we know about, while protecting you from risks we don’t know about.

This assumes that conformity is the best way to increase value for society which I would argue is wrong.

The more information they have the better it is for me. The reason that I use insurance is to lower the variance significantly while only slightly lowering the expected value. Now, if they had an oracle that could see the future, then there would be no point in using them. But that is not the case now, nor do I expect it to be the case any time soon.

Currently I want the insurance company to know what my expected value is properly so that I can get a rate that is appropriate for my needs. Of course I would prefer that they make a mistake and assume that my expected value is lower than reality, but if they make to many mistakes like that then either they will go out of business or raise their premiums.

The only way insurance becomes pointless is under absolute certainty of future events. If you merely have personalized calculated risk using all the information available, insurance still makes sense. For example, you have total information about yourself, and there's a minimum price you'd be willing to sell car insurance to a copy of yourself, and it makes sense for you to buy it, too.

> There should be one pool, everyone’s in it, we spread risk, and the whole damn thing is simpler and easier to regulate.

Call me naive, but I also always thought that's kind of the point of it: spreading the risk, or solidarity to use a less fashionable term. People can be very sick through no fault of their own, and those who are healthier should look out for them. If you calculate that "fair share" according to exactly how sick people are, then what's the point, wouldn't that just be a needless middleman that gets paid upfront?

This is about life insurance, not health insurance.

Sure, but the increase of granularization in insure in general was mentioned in the comment I responded to.

You could say there's a spectrum, between stuff like healthcare and genetic diseases, and someone insuring their pinky finger not because they need it, but because they're vain and think it's an astonishingly pretty finger, and they're just that rich. But somewhere on that spectrum, there are also families that lose bread winners, and I don't see why solidarity wouldn't also apply there.

The idea is correctly price the consequences of lifestyle choices.

Cautious Prius owners probably wouldn’t be happy sharing equally in a risk pool with enthusiastic drivers of sports coupes. If insurance rates were standardized, there’d be a lot more sports cars out there, until the Prius constituency got them banned altogether. Charging different insurance rates gives all parties what they want at a cost that creates appropriate incentives.

You might be able to say something similar about health insurance and sedentary smokers vs. runners. If an extra hour of work is less economically valuable than a gym visit, the incentive structure should reflect that.

I agree that insurance rates should not be affected by luck. One of the reasons the preexisting condition part of the ACA is important.

> You might be able to say something similar about health insurance and sedentary smokers vs. runners. If an extra hour of work is less economically valuable than a gym visit, the incentive structure should reflect that.

If someone gets sick and thus becomes sedentary due to their illness now you’d be effectively discriminating against them due to their preexisting illness because they can’t go be a marathon runner.

So we better create a rule that somehow excludes ill people from being discrimated against like this. Oh and then we’ll force the sick person to go through a hellish process to prove it too. Etc.

Wrt health insurance we should just get off that train. It only leads to a worse and worse place.

1. It's hard to disentangle lifestyle choices from genetic ones. If someone is born with an insatiable appetite that means it's 10x harder for them to stay at a healthy weight compared to someone else is that a lifestyle choice of genetics?

2. Being healthy already has quality of life consequences. And the extra cost to insure those lifestyle choices are probably pretty low, and most of that cost is just shifting it from primary insurance to medicare. Because everyone dies of something, and a lot of times it's really expensive. Insurers care a lot about whether that happens at 64 or 66. But as a society it doesn't really matter, and the insured bears most of the impact.

In support of your comment, when talking about weight it's common to talk about "fast metabolisms" keeping people skinny. Studies have shown that metabolisms don't vary much at all. What does vary is how hunger signals work with different people. The people who complain about being too skinny and can't gain weight simply find it difficult to eat enough to gain weight. Their body tells them they're not hungry. If you force feed them they'll still gain weight.

I'm one of those people who gain weight easily due to always wanting to eat. I was morbidly obese at 19 despite coming from a household of healthy eating. I'm now 33 and have maintained a healthy weight for years but it isn't fun. For me to maintain a constant, healthy weight I need to be hungry. Despite 5+ years of maintenance, I am still hungry constantly.

> If insurance rates were standardized, there’d be a lot more sports cars out there

Is insurance that large a cost factor? I would imagine the increased cost of the car and fuel costs would still be strong incentives against upgrading to sports cars.

I thought the point of insurance is buying lower variance with higher expected costs. You can have that even if the insurer has perfect knowledge of the likelihood of whatever event you're insured against. If you have probability p to have to pay $X, I can sell you an insurance for $(p+my profit margin) * X. You get the benefit of lower variance at the cost of $(my profit margin) * X.

I can sympathize with that argument, but unless everybody is mostly the same (within, say, about 10%) it won't be worth it for some people to be insured.

How does this work when people want to buy different amounts of life insurance?

Pooling risk disincentivizes people from making the changes they need to be healthier. And people not bearing the full cost of their decisions makes it easier for them to displace the negative consequences of their choices on others.

I bust my hump in the gym a few days every week because I want to age well - I make an effort to eat healthy food and now I gotta pay for an cookie addict who would rather slurp down medication than make lifestyle changes? Screw that.

I made my choices, I can live with them. Others make their choices, they get to live with their choices. If they get to take good stuff from me to support their bad choices, I expect some reciprocation.

How much do you think pooling risk disincentivizes people from exercising or eating healthy? It's probably not a lot because the U.S. is one of the most unhealthy and least insured places in the West.

That cookie addict will be paying for your medicare and social security for 30 years, while you pay for their medicare and social security for 5.

Everyone dies, and healthy people live a long time, and can die very die slowly and expensively. He'll pay for your full time assisted living while you die from Alzheimer's at 95, you'll pay for some critical care after his heart attack at 65.

>That cookie addict will be paying for your medicare and social security for 30 years, while you pay for their medicare and social security for 5.

Why can't we just pay for our own if we have the means and give those without means basic, cost-effective care for things that can't be solved with lifestyle changes?

And why do I have to be forced into this? Why can't I just chose my relations and affiliations for myself? Besides, bold of you to assume that social security will be there for me when I'm able to retire. That money is gone, I'm not going to see a dime of it - it's just an extra 15% tax on my first 110k.

Cost, Quality or Access. Whatever you get on one comes at the sacrifice of another.

This is called the Iron Triangle of healthcare.

Furthermore, you can have public insurance that charges co-pays, high-deductibles etc. Public Healthcare does not guarantee 'free healthcare', and if it did it would do so at cost of access (rationing) or quality (cost-effective care).

You can do that today with an HMO or a High-deductible plan if you wish.

There are many issues with healthcare in the us, but this is not a solution for them.

This story is about life insurance, not health insurance.

That Iron Triangle assumes that you have an efficient system. If you have a wasteful system (say, you pay twice as much per person as other places do without any advantage in quality or access) then you can reduce costs without hurting other things.

You seem to be thinking about something different wrt cost sharing and public healthcare. Cost sharing structure is a separate matter to risk pooling.

Taken to its conclusion we should all be in risk pools of 1.

What about (at least partial) cost reduction due to decreased bureaucracy of collecting data and segmenting population demographics and customizing premiums?

If you expand a government program 10x fold, its bureaucracy costs will expand >10x fold. Medicare as it is today is already bigger than its national counterparts, and it still has great administrative costs.

There are some benefits in government administration, but "efficiency" is not one of them.

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