An Inconvenient History
By Martin Harris

In the actuarial science, I’m even more of an amateur than I am in the "dismal science" of economics, but even I can comprehend the logic behind the concept of buying insurance before you crash the car. Similarly for home-owners’ insurance; after the house is in flames isn’t a good time to seek "good hands". And similarly for the natural-events sector of construction insurance; building on the Madrid fault, the Outer Banks, or the below-water-level parishes of Louisiana ought to be a lot more expensive, for actuarial reasons, than building in low-seismic risk areas, distant from oceanic hurricanes, or on the high ground, as the 18^th century French did when they sited the original New Orleans on high ground which didn’t flood during the Katrina event. Now, under the modern collective persuasion, prudent builders who don’t select such risky sites are Federally required to subsidize the imprudent who do, sometimes repeatedly. Well-armed guys (on your taxpayer payroll, ironically) clad in ninja suits with three large block letters on the back will come for you if you refuse. 

Similarly for health insurance. States, like Vermont, which have adopted the "community rating" collectivization principle, enable high-health-risk customers to pay the same low premium as less actuarially expensive customers, whether their adverse health prospects result from genetic inheritance or behavioral choice. And then there was Rod Clarke’s anti-helmet motorcycle group, which offered to sign waivers, disclaiming the right to expensive cranial care should they crash while riding; Montpelier was neither amused nor receptive. Finally, as those of advancing years know, the longer you wait to enroll in long-term-care insurance, the higher the premiums. To me, as an amateur actuary, it makes perfect sense. A rational person wouldn’t expect to be offered insurance once he’s at the in-patient desk of the nursing home, just as the post-Andrew de-roofed Floridian would have been and should have been turned down (pre-existing condition) for storm coverage. By this measure, the State government in Florida isn’t rational: it now offers home-owners’ insurance at less-than-market rates. When the bill inevitably comes due, look for Florida to demand dollar-denominated help from other States.

When medical care was a lot less effective, and therefore a lot less expensive, as recently as the last century, photographs taken then show beer-belly bulldozer operators, smoking movie stars, and drug-sniffing dissolutes in San Francisco basements. Back then, cigarette ads included doctor endorsements, and health insurance, rarely sold, didn’t exclude tobacco users or fat folks, although there was a cigarette ad suggesting that the latter "reach for a Lucky instead of a sweet". Car insurance wasn’t yet mandatory, but the companies’ actuaries were beginning to raise rates for multiple-crash customers. You couldn’t get insurance for a pre-existing condition like a wrecked car or a crushed pedestrian, but, if you chose to create more of the same after policy-purchase, you paid more for the post-incurred protection. It says a lot abut the mind-set behind Federal flood insurance that, actuarial reality notwithstanding, floodplain dwellers are enabled to pay less than they’ll most likely cost, and (with a very few rare exceptions) they’re encouraged to stay because their rates don’t rise when they choose to stay after repeated flood events. So much for actual actuarial science in governmental practice; I can bring to mind only two Midwestern cities which have relocated to high ground after repeated floods.

What I can’t bring to mind is an understanding of the reason for governmental hostility to a health-savings plan, the tax-incentive device whereby consumers set aside dollars for "ordinary" medical services, while relying on risk-spreading insurance against the possibility of "catastrophic" needs. That’s what car owners do when they opt for high-deductible coverage. 

Nor can I understand why consumers who freely indulge in health-risking behaviors, some of which can’t be described in this family newspaper, shouldn’t pay higher premiums for the higher health-service costs they are actuarially predicted to generate. I can accept the notion that, for the US as a First World nation, having sidewalks lined with the dying uninsured is a Third World tourist attraction not acceptable here, and that, therefore, actuarial science is trumped by governance standards for consumers with involuntary pre-existing conditions, their higher risk being covered in some part by general fund revenues, but I’ll admit to being unable to comprehend why those whose pre-existing conditions are voluntary --Twinkie (or worse) based-- shouldn’t pay more than those whose body-mass index meets a recognized standard. Nor should taxpayers who subsidize the involuntary pre-existing condition be required to subsidize the voluntary-action miscreants: employers increasingly won’t do it for smokers and the military already won’t do it for fatties, both of these qualities, Twinkie legal defense construct notwithstanding, being really quite voluntary. 

As for those indestructible young adults who freely choose not to purchase insurance in a (mostly) free country, they should be free to "go bare" if they wish, and sign up later at a higher premium, under the same age-related insurance cost schedule as is already established for long-term care. Should they lose their own personal actuarial gamble and get seriously sick while still "bare", they ought to expect other taxpayers to give them, as a charity, only the most basic and not the most advanced care. As the Prez himself, in a health-care cost-control context, said recently, "sometimes a pain-killer is cost-effective treatment". And a recent Ag Secretary made a (best paraphrased) comment about "clean sheets and a tight roof". The full flavor can be Googled under "Butz quotes" but I’d recommend against it.

Martin Harris is a former Chairman of Citizens for Property Rights