Two scams, both bad

Good piece in Sunday's paper on the PPR -- the poor people's rate, or the premium that poor and working classes are charged over and above what the rich charge one another for the same goods and services.

If that sounds to you like contentious rhetoric that overstates the case, then please read the article: "Lower income can mean higher rates."

Insurers often factor in a driver's occupation and/or education level when setting rates.

The practice is legal in Delaware and all but a handful of other states.

But critics charge there's no valid reason why a lawyer should pay less for insurance than a waitress with the same driving record, and that the practice results in minorities and low-income drivers paying more. And the difference in rates is more than spare change.

A 2007 report by the Florida Office of Insurance Regulation found the premiums one company charged Florida drivers varied by as much as 200 percent, depending on a driver's occupation and education level.

The department found that under some plans, drivers "with more professional occupations (doctors, lawyers, architects), and advanced college degrees" received preferred rates while blue-collar workers and those with a high school education paid more.

"It's not obvious to me why a clerk is a worse driver than a CPA," said Robert Hunter, director of insurance for the Consumer Federation of America.

Let me repeat that one line:

A 2007 report by the Florida Office of Insurance Regulation found the premiums one company charged Florida drivers varied by as much as 200 percent, depending on a driver's occupation and education level.

The PPR, for auto insurance, can be as high as 200 percent. That's hundreds of dollars. Every year. Hundreds of dollars charged to people who, by definition, do not have hundreds of dollars to spare and charged because they do not have hundreds of dollars to spare.

The game is rigged.

* * *

John McCain seems to have forgotten the First Rule of Holes when it comes to his goofy proposal for a "gas tax holiday."

The Arizona senator's Big Idea is to help Americans at the pump by diverting an additional 18 cents of the price of every gallon of gas to the profits of the oil companies. The effect on what we're all paying to fill our tanks would be negligible -- far less than 18 cents a gallon. But the side effect -- an $8-$10 billion windfall for the oil companies taken directly from funds needed for highways and bridges -- would be six different kinds of bad. That side effect is so vastly disproportionate to the purported aim of this policy that it's difficult not to suspect that this side effect is really the proposal's primary purpose.

You'd think at least one of McCain's advisers would point out that transferring billions of dollars from the public coffers directly into the pockets of ExxonMobil and Royal Dutch Shell seems like a dumb thing to do while running for office. Trying to spin such corporate welfare as help for working families just adds insult to injury.

But McCain is defiantly proud of his hole and he's determined to keep digging. Economists have uniformly panned McCain's proposal. In the words of MIT's Joseph Doyle, economists "are as close to unanimous as it gets in viewing the proposal as a horrible idea.” Undeterred, McCain struck back: "I'm not going to put my lot in with economists," McCain said.

What more evidence do you need that this man is simply a carbon copy of George W. Bush? That McCain would stoop this low, cloaking himself in populism while sneering behind his hand that the people are too stupid to realize his shell game won't help them, just his corporate masters, just goes to demonstrate that ...

Wait, what? It was who?

You're kidding.

Well, that's just ... it's ...

Is there a word that conveys both extreme disappointment and outrage? Because that's the word I need here.

Comments

[McJulie]

Hapax: If I don't have health insurance, I can't get non-emergency medical care.

This might vary from state to state (I think Massachusetts has some kind of enforced health insurance law?) but in most states that I know of it is entirely possible to get non-emergency medical care without health insurance.

1. Planned Parenthood for girly things like pap smears and birth control. Out of pocket, sliding-scale.
2. Free and reduced-rate clinics for routine things like flu shots.
3. Regular doctors who will take reasonable payments directly from patients.
4. Miscellaneous screening and examining clinics that will happily take your money.
5. "Alternative" medicine like acupuncture and chiropractic.

I use 1,3, and 4. I have used 2 and 5. I have not had health insurance for years.

I point this out not for libertarian-ish reasons, as I'm a single-payer advocate. Just setting the record straight.

[Tonio]

It seems that many people want insurance to act not as a hedge against risk, as it was designed, but as a means to combat social or economic or biological inequality.

From my reading, no one here has advocated such an explicit goal for insurance. My own issue is not with hedging against risk, but with the hedging method chosen.

Insurance is not the cause of inequality; insurance companies don't charge the poor more because they enjoy screwing them more than rich people.

While that is true, insurance can contribute to inequality when it focuses more on customers' demographics and less on their individual behavior. And of course the intention behind the demographic view is not sinister. I suspect the motive is simple laziness - it's easier to classify people according to demographics than to look at them as individuals, even though doing the latter might make little difference in the company's bottom line.

[hapax]

McJulie:

The only time in my life I've been without health insurance was when I lived on Long Island. I was between jobs, my spouse had no insurance at his (despite the fact he was teaching at a medical school) and I had a six month old infant. I could not get well-baby care from any of the dozens of pediatricians I called, even when I went to their offices and literally waved cash at them. They told me that they just "couldn't afford the risk of finding a serious [= expensive] problem."

I finally ended up driving to Maryland and having my father-in-law give my daughter her immunizations. (I suppose I *could* have used your # 5. I could have put feathers in my hair and danced around her waving chicken bones as well. Just about as effective.)

People who think Moore's SICKO exagerrates don't realize that he barely skims the surface of the US's dysfunctional healthcare system.

(And am I the only one who had to show proof of insurance, or put up a thousand dollar bond, in order to get a driver's license? Without which, in Indiana, I wouldn't have been allowed to vote?)

[Realist]

Tonio,

It's possible equality isn't the explicit goal, but it seems to be the implicit desire. To say that statistically high-risk poor people should pay the same insurance as low-risk rich people is to use insurance as a means of furthering economic equality. You are making the rich subsidize the risk of the poor (something I am in favor of, just not through the system of private insurance). This doesn't contradict your issue with the hedging method chosen; forbidding certain risk-hedging methods is itself a means of increasing equality, just as, say, forbidden businesses from discriminating against racial minorities is a means of furthering equality.

[i]While that is true, insurance can contribute to inequality when it focuses more on customers' demographics and less on their individual behavior.[/i]

But would a system without insurance not have that inequality? If the insurance company statistics are accurate, higher crash risk is just one more bad thing that comes along with being poor (whatever the particular causative relationship). This is an existing social inequality merely channeled by insurance companies.

As for looking at people as individuals, it's not really possible--I mean, besides actual driving history, what indicator of likelihood to cause damage exists that could be used in a nondiscriminatory way? Even driving history is in some sense a generalization--I'm sure that not everyone who negligently crashes once necessarily does so again. The whole business of prediction is one of generalizing from the past to the future, and by its very nature it's going to unfairly target people who don't deserve it--at the very least, the truly repentant crashers.

[inge]

Realist: If you are going for a "just" insurance system where everyone is just paying for their own risk, insurance systems will become obsolete, as everyone will be better off with a savings account.

If you are going for an "equal" one, where everyone pays the same regardless of risk, you have to implement some system to enforce equality in the presence of information which is worth money.

Me, I'd rather I never get any of the money I pay for insurance back in the form of claims. Accidents are a hassle, and being injured hurt and takes time from things that are much more fun than, say, physical therapy.

[Tonio]

To say that statistically high-risk poor people should pay the same insurance as low-risk rich people is to use insurance as a means of furthering economic equality.

That is not what I advocate. I'm suggesting that there might not be a factual basis behind the insurance companies' assumption about poor people being higher risk than rich people. I'm suggesting that statistics give far from a complete picture about individual character and individual behavior.

My point isn't even about equality as a principle. My point is about judging people as individuals rather than members of statistical cohorts.

If the insurance company statistics are accurate, higher crash risk is just one more bad thing that comes along with being poor (whatever the particular causative relationship). This is an existing social inequality merely channeled by insurance companies.

We cannot assume that the statistics are accurate. Here is how an insurance company can contribute to inequality - a poor person with a strong sense of personal responsibility may likely have a low crash risk. But if the insurance company assumes that poverty correllates with high crash risk, then the system is gamed against this particular type of poor person. Similarly, a rich person with a poor sense of public responsibility would benefit from the assumption of high income correllating with low crash risk.

As for looking at people as individuals, it's not really possible--I mean, besides actual driving history, what indicator of likelihood to cause damage exists that could be used in a nondiscriminatory way?

I would also look at a driver's criminal record, general employment history, and possibly credit history. By the latter, I mean how often a driver has defaulted on loans and credit cards, not the simple credit rating. These would give some idea of the driver's sense of personal responsibility.

The whole business of prediction is one of generalizing from the past to the future, and by its very nature it's going to unfairly target people who don't deserve it--at the very least, the truly repentant crashers.

I agree - we can't completely eliminate unfairness. I'm saying that data on the driver personally should outweigh the statistical factors.

[McJulie]

Hapax: Your horror story certainly explains your statement.

So now I don't know if the difference is because I live in Washington, or because I have never tried to get care for a child, only myself.

And it's appalling that anything like that should ever happen to anybody. (Hence my single-payer advocacy.)

inge, I'm not sure what you mean. If everyone pays for their own risk insurance is still worthwhile as a means to reduce personal risk. A savings account won't get you as much money if you actually do get into a disaster. I am in favor of either a purely capitalistic insurance system or a socialized one run by the state, at least we get either efficient insurance or equality in that choice (and we get neither in regulatory capitalism).

Tonio,

Do you mean that there is no statistical basis to think poor people in general are greater risks than rich people, or just that there is no basis for thinking any given individual follows his statistical cohort? If the former, you may be correct, but I would tend to trust the insurance companies more than you on that point because their success depends on correctly judging risk, while you're just judging from the sidelines.

If you mean not all poor people are representative of the statistics, of course you are correct, but it is still true that insurance companies will better predict risk overall by assuming that the statistics apply generally, because they have no better information to use. Your suggestion that behavioral history should be used rather than factors a person has less choice over appeals to my sense of fairness, but I think using more information will usually allow better predictions than using less information, no matter what the information actually is.

[Tonio]

If the former, you may be correct, but I would tend to trust the insurance companies more than you on that point because their success depends on correctly judging risk, while you're just judging from the sidelines.

Valid point. I'm less trusting of the insurance companies - I would like to see the actual statistical basis instead of taking the insurance companies' word for it. It was mentioned earlier in the thread that the companies are secretive about how they arrive at their risk calculations. We can't ignore the possibility that they're judging risk according to what is convenient for them. (My wife has dealt with health insurance companies professionally, and she points out the idiocy of managed care this way - just because the insurer has authorized a treatment does not mean the insurer has agreed to pay for it.)

[Ecks]

It becomes a lot more intuitive when you remember that the whole field of statistics (which insurance so heavily relies on) was created by and for gamblers.

Actually it drew a lot of information from gamblers and gambling, but modern statistics were first created for studying agriculture - sorting out whether the treatment you applied to field A really did lead to taller plants, etc. Strange but true.

Anyway, having just sat through a class taught by a database marketer that was all about how you take a bunch of data (gender, purchase history, etc), and build models to predict who will respond to your junk mail (which is incidentally a GOOD use of stats, because this way you can avoid the expense of 'promoting' people who are unlikely to respond, hence sparing us junk-mail haters from receiving as much), I can tell you on pretty solid authority that David is bang on right in this discussion.

I've also sat through a finance course, where you learn things like "the reason poor people get charged more for loans isn't because banks hate poor people, it is because they are at much higher risk of defaulting on loans (hey, they're poor, go figure), making it rational for the banks to demand a higher rate of return on loans before it is worthwhile lending to poor people. If you know that 10% of poor people will default on your loans, meaning you lose the money that you lent them, then a 10% lending them money at a 10% rate of interest means that on average you'll hand out more money than you'll get back and you go out of business. So if someone's poor you have to charge them 20% or 30% or something (note, all those numbers were just pulled firmly from my ass for purpose of illustration).

I think the upshot is that regulated capitalism is actually the optimal solution, not the worst solution (as someone argues above). Pure comunism has lovely full employment, but a lousy standard of living. There are big (lack of) incentive problems for workers, and centrally planning economies is really really haaaaard to do right. Pure capitalism is very efficient at creating wealth, but lousy at distributing it (poor people are often so unprofitable that all you can do is charge them extra, or hope that htey just die and stop costing people money - which is all well and good from the point of view of efficiency, but on a human level is frankly psychopathic).

The only good option is to balance the efficiency and productivity of a capitalist system with regulation that reins in the worst of the abuses and iniquities. In the case of insurance, even if poverty *IS* a good indicator for high risk of crashes, the combination of a society that *requires* various forms of insurance for basic healthy living (and in much of america, unfortunately, cars are pretty much required), then charging poor people more is so much unfair that we have a societal interest in making rich people subsidize that risk in poor people. Where the insurance in question is not a necessity (i.e., your life and limb and livelihood do not depend on it), then insurance companies should be free to model away.