Insurance cost is not always fair

Should women have to pay more for health insurance than men? That has been a critical question for opponents of Republican healthcare reform, and requires grappling with the fundamental nature of insurance, market prices and fairness.

The Affordable Care Act limited the ability of health insurers to charge women more than men, and imposed greater uniformity of policy prices. Under Republican plans, those provisions are repealed. The return of many decisions to the states would most likely mean more differential pricing, namely higher policy prices for people with higher expected health-care expenses.

Insurance is about the pooling of risk. If you are trying to cover $100,000 in health-care costs by buying a policy that costs you about $100,000, that isn’t really insurance at all. It’s merely changing who cashes your check.

Higher health-care spending for women is partly because of services related to childbearing. Society may have an obligation to help out babies (and mothers), plus they will someday finance our retirement, so let’s make childbearing easy. That said, governments have numerous means of subsidizing childbearing—direct payments, tax credits, free clinical services and public education—and it’s not obvious that regulating insurance pricing is the best way to achieve this end.

So what is there to be said for differential pricing? It doesn’t mean that individual policy prices exactly match individual spending. If many women are pooled together into more expensive policies, the women with especially high health-care costs are still subsidized by the women with especially low health-care costs.

Uniform pricing increases the incentive for some insurance policyholders to try to leave the system. To the extent that men are systematically subsidizing women, for instance, men will be less keen to sign up for insurance, even if there is a legal mandate. Many insurance companies think there is a preponderance of high-expense individuals on the exchanges, and so they have been withdrawing their participation.

Under uniform pricing, men or whichever group is paying the subsidy will also be less willing to politically support such a regime. For all the moral arguments against differential pricing, health-care reforms must be politically sustainable, too.

Uniform pricing also gives insurance companies less incentive to attract female policyholders. As a matter of law the companies cannot turn women away. But if writing policies for women is less profitable, the insurance companies will allow or encourage their provider networks to evolve in a way that is more attractive to men than to women. Services for women, including for childbearing, might end up under-provided or stagnate in quality.

One way to limit health-care costs is to have insurance policy costs reflect actual expected expenditures to a greater degree, thus encouraging employers and individuals to seek policies oriented toward catastrophic coverage. It also will mean a degree of differential pricing, if only to encourage economization at the level of policy choice.

Many people consider differential pricing unfair or offensive. But short of complete reimbursement for everything, all health-care systems make pricing choices, whether transparently or not. The reality remains that some differential pricing is better than none at all, even if we haven’t figured out exactly where to draw the line.