Cathy O’Neil is worried about insurers using data to predict patients’ health outcomes. She writes in Bloomberg View that “if we’re not careful, pretty soon it’ll be almost like there’s no insurance at all.”
I feel like this reflects kind of a weird view about the purpose of insurance.
Why do I have, say, flood insurance on my house? Let’s say there’s a 1% chance that my house gets destroyed in a flood, and my house is worth a million dollars. In a world without insurance, I have to save all the money I possibly can in order to be prepared for this potential cost, and even if I do I still probably won’t have saved enough and I’ll end up bankrupt or something. With insurance, I can just pay the $10,000 and not worry about it again.
The insurance is necessary because of our uncertainty: no one can predict exactly when and where floods will happen. It’s not about making everyone share the risks of floods. It would be ridiculous to suggest that it’s only fair that someone in Iowa pay the same for flood insurance as someone in Florida. The person in Florida should internalize the costs of the extra risks they’re taking.
And like, if we somehow got better at predicting floods, that would be great, right? Sure, it would make some people’s insurance more expensive. But it would make others’ cheaper. And it would allow everyone to better account for the cost of floods when thinking about the tradeoffs of different houses.
Substitute cancer or heart disease for floods. What makes that situation different?
I guess one thing people would say is that where you live is your choice, while your health outcomes aren’t. But I don’t think that’s super clear. You can do lots of things (exercise, diet, sleep) to influence your health outcomes. And there are lots of reasons people might be constrained in their choice of where to live–job opportunities, family members who need caregiving, whatever.
I think that what Cathy O'Neil really wants is socialized medicine. She thinks it’s unfair that people with worse health have to pay more for healthcare, and the government should just pay for everyone’s health care out of progressive taxes or whatever. And sure, it is unfair.
But what we have is a healthcare system based on private insurance. And I’m not sure how I feel about trying to make that more like socialized medicine by actively trying as a society to be as bad at making predictions about people’s health as possible.