Monday, 20 August 2012

Socialising private costs

What's a good way to make sure that smokers cost other people money? Make it illegal for private health insurers to charge smokers more. Seems a particularly stupid policy, but Australia's going for it.
Private health insurers have failed in a push to charge smokers higher premiums. While the federal government triumphed over big tobacco this week, the Minister for Health, Tanya Plibersek, said smokers should not be penalised with higher premiums - and people should pay the same regardless of the state of their health. She ruled out allowing the health funds to charge smokers more.

Private insurers - led by NIB - are interested in the idea and argue it is the next step the government could take to reduce rates of smoking.

''We should be able to offer a discount for good healthy behaviour like not smoking and exercise,'' the chief executive of NIB, Mark Fitzgibbon, said.
The Australians have a pretty extensive regulatory apparatus around "private" health insurance; see Robson et al for a recent analysis. I'd suggested in the introduction to that issue of Agenda that whatever goals are sought by community rating could better be achieved by providing transfers to individuals based on the exogenous parts of their individual risks and letting insurers set actuarially fair premiums: poorer and less healthy people are given money to help them buy insurance, but incentives to make efficient investments in your own health are maintained.

Once you've banned insurers from charging differential fees for smokers, all kinds of anti-smoking policies can have second-best cases supporting them; first best would just let insurers set fair premiums. Government creates the "market failure", then supplies the interventions that partially offset the failure. And everybody gets to shout about how markets are terrible because absent intervention, everybody else has to share the costs imposed by smokers.

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