Rating pooled health insurance

[gregintenn]

We recently found out that beginning next year, you will be charged a $50 per month surcharge for insurance premiums if you smoke. I learned today that in 2011 they will do something similar for those who are overweight. Some in the office naturally complained while others argued that pooled medical insurance is the only insurance that isn't rated. I haven't fully formed an opinion, but I lean toward the latter. Do you think it is a good idea? How far will they go? Does anyone else's employer do this?

 

[gregintenn]

We recently found out that beginning next year, you will be charged a $50 per month surcharge for insurance premiums if you smoke. I learned today that in 2011 they will do something similar for those who are overweight. Some in the office naturally complained while others argued that pooled medical insurance is the only insurance that isn't rated. I haven't fully formed an opinion, but I lean toward the latter. Do you think it is a good idea? How far will they go? Does anyone else's employer do this?

 

[gregintenn]

No Opinions?

 

[JamesSion]

I spent about 25 years in the healthcare financing business or health insurance. Even pooled health insurance is rated based on the claims experience of the pool you participate in vs. the income it generates.

The law of large numbers and pooling many insureds together to spread the risk is what makes insurance works.

So anything which differentiates premium or health status and makes those selection factors in the purchase of insurance generates the potential for bias in choosing insurance carriers. Insurance companies do things like smoking rate ups and height/weight rate ups to skew those factors in their favor so they win financially.

Other factors used are occupation, health history or status, geographic location, and many, many more.

All of these to some extent undermine the original principle of the financing mechanism which is best served by having everyone participate in the program with no selection bias factors for either participating or premium differentials.