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  #201  
Old 07-30-2018, 11:19 AM
Ravenman Ravenman is offline
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Originally Posted by Fotheringay-Phipps View Post
The context here is the claim that if you don't allow for cross-subsidization between high cost people and low cost people, that you would be rejecting a fundamental concept of insurance. Meanwhile, the exact opposite is true - risk underwriting is the fundamental concept of insurance that applies here. In that specific context, pointing to SS retirement and Medicare as examples of insurance which exists without risk underwriting is invalid, because these are run more as (mandatory) social programs and for that very reason don't operate using ordinary insurance principles.
Can you provide a cite that insurance MUST charge different rates for each risk level, otherwise it isn't insurance?

The way I see it, there's plenty of insurance policies that may undertake simplified rates. Why, I just recently signed up for a professional liability insurance that provides for standardized rates across several levels of insurance, without further screening as to whether I'm the best at my profession or whether I'm a massive risk. Is that not an insurance program that I'm paying for?
  #202  
Old 07-30-2018, 11:34 AM
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Originally Posted by Ravenman View Post
Can you provide a cite that insurance MUST charge different rates for each risk level, otherwise it isn't insurance?

The way I see it, there's plenty of insurance policies that may undertake simplified rates. Why, I just recently signed up for a professional liability insurance that provides for standardized rates across several levels of insurance, without further screening as to whether I'm the best at my profession or whether I'm a massive risk. Is that not an insurance program that I'm paying for?
F-P is right regarding the nature of risk pools. The original claim is that if you can't group high and low risk people together, then it isn't insurance. That's not accurate. Insurance pools risk by grouping similar risks, actuarially determining the risk of the pool, and charging a premium. Members of the risk pool pay similar premiums because they all have similar risk levels. If there is a 1/100 chance of a $100/loss for a group of 100 people, then if everyone pays $1 premium it's a fairly level risk pool. But if it is known that 99 people have a 1/100 chance of that $100 loss, and one person has a 1/2 chance of a $100 loss, that person wouldn't normally be grouped in the risk pool. From the wiki:
Quote:
The term is also used to describe the pooling of similar risks that underlies the concept of insurance. While risk pooling is necessary for insurance to work, not all risks can be effectively pooled. In particular, it is difficult to pool dissimilar risks in a voluntary insurance bracket, unless there is a subsidy available to encourage participation.
Another concept of insurance is that there must be risk transfer. When talking about Social security as social programs and not insurance, that's mostly accurate too. The disability components of social security function as insurance, because there is uncertainty and risk transfer. The old age benefit that kicks in at ~65 however is not the same. Everyone is eligible, and there is little uncertainty. It's a form of transfer payment and not insurance.

Now, you could have insurance that doesn't price differently for different levels of risk, or aggregates together many disparate levels of risk. In your example when certain factors are not considered, it could be because they are not able to do so legally, or doing so is not meaningful enough in the loss experience to justify the effort. To the extent legally allowed, all insurance will price based on levels of risk, and will seek to price greater risk greater, to the extent the greater risks can be identified and are worthwhile to do so.
  #203  
Old 07-30-2018, 11:43 AM
Fotheringay-Phipps Fotheringay-Phipps is offline
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Originally Posted by Ravenman View Post
Can you provide a cite that insurance MUST charge different rates for each risk level, otherwise it isn't insurance?
I didn't say it wouldn't be insurance (by definition) if it didn't charge different rates for each risk level. Rather, that generally accepted principles of insurance call for charging different rates for different risks (and the insurance aspect is in insuring against that random variation which will unequally hits different people of the same a priori risk). A given insurance scheme may decide for whatever practical reason that it's not worthwhile or feasible to price things differently in their particular situation, but that doesn't mean that this is a principle of insurance - the exact opposite is true.

Quote:
The way I see it, there's plenty of insurance policies that may undertake simplified rates. Why, I just recently signed up for a professional liability insurance that provides for standardized rates across several levels of insurance, without further screening as to whether I'm the best at my profession or whether I'm a massive risk. Is that not an insurance program that I'm paying for?
I would guess that professional liability insurance would be an area where it's very hard to screen for whether someone is the best at their profession or a massive risk. And it's likely that the people buying such insurance themselves don't even know whether they're a massive risk or not. As a result, the insurer can capture a reasonable spread of risk without explicitly pricing for it.

If you find a life insurance company which does not price by age, then you've found something. But you won't, because no life insurance company with such an approach to pricing will survive.
  #204  
Old 07-30-2018, 11:53 AM
Ravenman Ravenman is offline
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Originally Posted by Fotheringay-Phipps View Post
I didn't say it wouldn't be insurance (by definition) if it didn't charge different rates for each risk level. Rather, that generally accepted principles of insurance call for charging different rates for different risks (and the insurance aspect is in insuring against that random variation which will unequally hits different people of the same a priori risk). A given insurance scheme may decide for whatever practical reason that it's not worthwhile or feasible to price things differently in their particular situation, but that doesn't mean that this is a principle of insurance - the exact opposite is true.

I would guess that professional liability insurance would be an area where it's very hard to screen for whether someone is the best at their profession or a massive risk. And it's likely that the people buying such insurance themselves don't even know whether they're a massive risk or not. As a result, the insurer can capture a reasonable spread of risk without explicitly pricing for it.

If you find a life insurance company which does not price by age, then you've found something. But you won't, because no life insurance company with such an approach to pricing will survive.
That's a lot of words for a lot of backpedaling.

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Originally Posted by Bone View Post
The old age benefit that kicks in at ~65 however is not the same. Everyone is eligible, and there is little uncertainty. It's a form of transfer payment and not insurance.
There's a good amount of uncertainty. Lots of people die before age 65, and they don't get their payments back.

Last edited by Ravenman; 07-30-2018 at 11:55 AM.
  #205  
Old 07-30-2018, 12:12 PM
Fotheringay-Phipps Fotheringay-Phipps is offline
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Originally Posted by Ravenman View Post
That's a lot of words for a lot of backpedaling.
That's few words, but if they suffice for you to save face, then they've accomplished what they needed to.
  #206  
Old 07-30-2018, 12:22 PM
Ravenman Ravenman is offline
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Originally Posted by Fotheringay-Phipps View Post
That's few words, but if they suffice for you to save face, then they've accomplished what they needed to.
Your apology is graciously accepted.
  #207  
Old 07-30-2018, 01:41 PM
OldGuy OldGuy is offline
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Originally Posted by Fotheringay-Phipps View Post
Most group insurance is provided and sponsored by employers, and to the extent allowed by law they absolutely charge differently based on demographic risk and health risk scores. What some people may find confusing in this respect is that the employer then charges uniform employee contributions without reflecting these factors, but that's an employer business decision which has nothing to do with insurance.
I agree that insurance companies charge higher rates for insurance to say mining companies than to retail sales companies based on the inherent risks of the jobs. (I agree that this is most probable; I don't know it for a fact.) What I've never seen is running any medical tests (except drug screening) on employees or job applicants to see how healthy they are. In fact it is illegal under ADA to require medical tests of applicants. I'd assume this applied to farming out such tests to insurance companies.

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Originally Posted by Fotheringay-Phipps View Post
But I would point out that WRT retirement plans/annuities, the risk is the other way around, so to speak. Meaning, the insurer loses money if the person lives too long, and profits if the person lives shorter. So a high risk person is a very healthy person, and vice versa. The only way to price by factors other than age and gender would be to give people lower rates if they can prove that they have various health conditions and a shorter expected live span, which is not so feasible and lends itself to gaming.
Yes they go the opposite way (healthier means higher payments by insurance company) but so what. It's in principle a distinguishable risk. Yes I could lie and say I have terminal cancer to get higher annuity payments, but I could also lie and say I don't to get lower health insurance. (Full disclosure, I do, so it's not a lie actually in my case and guess what, I couldn't get higher payments. I could opt to have my wife receive full benefits after my death rather than 3/4, but that choice is available to all.) Without medical tests I don't see why one way is inherently more subject to gaming than the other.
  #208  
Old 07-30-2018, 01:52 PM
OldGuy OldGuy is offline
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Originally Posted by Bone View Post
When talking about Social security as social programs and not insurance, that's mostly accurate too. The disability components of social security function as insurance, because there is uncertainty and risk transfer. The old age benefit that kicks in at ~65 however is not the same. Everyone is eligible, and there is little uncertainty. It's a form of transfer payment and not insurance.
It's a transfer payment with regards to means testing or taxation of benefits if your income is higher, but it's definitely insurance as well. People who live longer continue to get the benefits. So there's an insurance annuity embedded. Additionally ~15% of the US population does not reach age 65 so will not collect retirement benefits. (Yes I realize some might opt for early retirement at age 62, though a bigger problem is determining what fraction of people who've worked enough to get benefits don't reach age 65. This would be a smaller percentage.)
  #209  
Old 07-30-2018, 02:05 PM
Fotheringay-Phipps Fotheringay-Phipps is offline
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I agree that insurance companies charge higher rates for insurance to say mining companies than to retail sales companies based on the inherent risks of the jobs. (I agree that this is most probable; I don't know it for a fact.) What I've never seen is running any medical tests (except drug screening) on employees or job applicants to see how healthy they are. In fact it is illegal under ADA to require medical tests of applicants. I'd assume this applied to farming out such tests to insurance companies.
Again, this seems to be confusing the employers with the insurance companies. The insurers charge based on risk factors. The employers charge the same for everyone. So the employers are essentially bearing the risk and paying the "surcharge" for higher cost people.

There are two primary reasons that anti-selection is a much smaller factor for employees as compared to other health insurance. 1) is that employees need to be healthy enough to work (though their dependents don't, and this mitigates this factor) and 2) since employers typically bear most of the cost of coverage, this incents a lot of healthy people to sign up, and helps spread the risk more than would be the case otherwise. Insurers charge significantly higher premiums if employee contributions are too high and some won't underwrite such coverage altogether.

But again, after all that, the insurers very much do reflect risk factors to the extent allowed by law, including demographics as well as prior claims history.

Quote:
Yes they go the opposite way (healthier means higher payments by insurance company) but so what. It's in principle a distinguishable risk. Yes I could lie and say I have terminal cancer to get higher annuity payments, but I could also lie and say I don't to get lower health insurance. (Full disclosure, I do, so it's not a lie actually in my case and guess what, I couldn't get higher payments. I could opt to have my wife receive full benefits after my death rather than 3/4, but that choice is available to all.) Without medical tests I don't see why one way is inherently more subject to gaming than the other.
As previous, I don't think it's practical to set up a system of assessing whether and to what extent to give people lower cost pensions based on health conditions. It's not because the insurance companies are committed to some risk sharing principle that they don't do this.

Last edited by Fotheringay-Phipps; 07-30-2018 at 02:06 PM.
  #210  
Old 07-31-2018, 12:21 PM
Fotheringay-Phipps Fotheringay-Phipps is offline
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In the context of the recent discussion, it's perhaps worth noting a new study out today from the Kaiser Family Foundation. Basically, the ACA exchanges are increasingly coming to resemble a social program, in the makeup of enrollees and the underlying basis.

Per this study, the percentage of people enrolled in exchange plans who are not subsidized reached an all-time low in 2018, at about 13% of the total enrollment. The thinking is that recent price increases have pushed away the more price-sensitive non-subsidized people, while leaving in more of the subsidized people who are relatively insulated from price sensitivity. The authors expecet this trend to continue.
Quote:
Originally Posted by KFF
While the majority of people on the exchanges receive subsidies and will be protected from premium increases, middle-class people who do not qualify for subsidies will feel the brunt of future premium increases. This is especially true of people with pre-existing conditions who likely would not qualify for short-term plans that base eligibility and premiums on people’s health.

The availability of premium subsidies – which rise along with premiums – is likely sufficient to keep the individual insurance market financially sustainable in the face of policy changes and enrollment declines. However, based on the current trajectory, the market is likely to be increasingly dominated by lower-income people and those with pre-existing conditions.
And as noted earlier, the major carriers have continued to shun the exchange plans, with the plans available increasingly being narrow-network plans by lesser-known carriers.
  #211  
Old 09-21-2018, 07:31 PM
Fear Itself Fear Itself is offline
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Maryland ObamaCare rates set to decrease
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Premiums for Obamacare plans in Maryland will drop an average of 13 percent next year, state officials announced Friday, a dramatic departure from what insurers had initially proposed.

The decrease comes after the federal government approved Maryland's plan to shore up its ObamaCare markets by establishing a "reinsurance" program.
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