Monday, June 30, 2008

Misconceptions About Health Insurance Premiums

David Lazarus reports, with a tone of righteous condemnation, that women pay higher health insurance premiums than men. Apparently Lazarus considers it obvious that the sexes ought to pay the same. But why? Premiums differ on the basis of both risk and cost. It would be a shocking coincidence for men and women, who differ substantially in both physiology and behavior, to have identical health costs. Men almost certainly pay more for food on average, and nobody’s complaining about that.

As Lazarus recognizes, men pay more than women for car insurance, which he seems to think is okay because “Supposedly guys drive more recklessly and get into more accidents.” (Actually, I’ve read that it’s simply because men drive more.) The objection to women paying more for health insurance, it seems, is that women aren’t being rewarded for their greater virtue: “[W]omen ... live longer on average because they tend to eat right, exercise more frequently and take better care of themselves.”

But the purpose of insurance is not to reward good behavior. It’s to cover expected costs, and there are good reasons to think women’s costs will tend to be larger. Here’s one obvious reason: contraception is covered by many insurance policies, sometimes by law. The birth control pill costs about $20/month (or more), and that’s not including the cost of processing pharmaceutical insurance claims. Note that the premium differences Lazarus reports range from $9/month to $25/month. Granted, not all women use birth control, and some of the price is covered by copayments. Nevertheless, I’ll bet that a sizable chunk of the premium differential is explained by contraception.

If there’s an objection to be made here, it’s that it makes no sense to insure for contraception. It’s the equivalent of insuring your car for oil changes. Insurance makes most sense for covering low-risk, high-cost events. Contraception is neither. It would probably cost less for women to buy their contraception out-of-pocket and cut out the expensive middleman (although insurance companies might want to subsidize contraception to reduce the risk of having to pay for maternity care).

So why do we have insurance for contraception? First, as noted earlier, it’s a law in some states. Second, our tax code encourages us to pay for as much healthcare as possible through insurance, rather than out-of-pocket, in order to get the tax break. If we changed these laws, fewer insurance policies would cover contraception, and the difference between male and female premiums would probably shrink.

One possible response is that men also benefit from contraception, so they should bear part of the cost. But when will women be most likely to demand their partners contribute: when birth control is hidden within a premium differential, or when birth control is a monthly out-of-pocket expense? I suspect the latter.


Anonymous said...

Health insurance today is nothing like it was originally intended. You are right to say that it should cover the catastrophic type expenses. Instead we pay thousands of dollars a year for hundreds of dollars in benefits.

The Health Savings Account is a great choice for people that want more control over their health dollars (although you can't GET a health savings account if you have access to traditional health insurance).

Anonymous said...

It has been my experience that women make the health insurance decision in the family more often than men. I haven't yet had one complain that their premiums are higher. What they do complain about is portability.

I agree with Kathryn, HSA's are a way to go.