The Practice and Ethics

The Practice and Ethics of Risk-Rated Health Insurance

Donald W.

Light, PhD

Table 1 lists health conditions reported by commercial insurers to (1) charge a higher premium, (2) write exclusion clauses within a policy so that costs from preexisting conditions are not covered, or (3) deny coverage altogether.1 As one can see, risk rating has proliferated to

Health insurance in the United States is driven by competitive risk rating and is promoted as the best way to give policyholders optimal value for their money and to be fair to those with lower risks. In practice, however, competitive risk rating costs more than noncompetitive, universal systems of health insurance, and it erodes the basic function of insurance to spread infrequent large losses over a wide base. This article describes not only how risk rating covers least those with the greatest medical bills, but also how it has spawned a labyrinth of complex manipulations by insurance companies to charge more or pay less than actuarially fair risk rating would justify. The final section shows that even if risk rating were done fairly, it contradicts moral fairness. Many of the leading proposals for national health insurance do not address these practical and ethical issues. The medical profession and policymakers need to discuss them and take a stand on them.

(JAMA. 1992;267:2503-2508)

include common, often minor health problems, such as allergies, asthma, back strain, arthritis, and obesity. But exclu¬ sions and denials are also applied to costly cases involving disabilities, seri¬ ous illness, and chronicity. Insurance companies also risk rate by redlining, or excluding entire industries (Table 2), such as beauty shops, hotels,

THE FOUNDATION of private Amer¬ ican health insurance is risk rating, the practice of setting premiums and other terms of policies for groups and indi¬ viduals according to the age, sex, occu¬ pation, health status, and health risks of policyholders. Through competition,...