So far, the policies hitting the market reward healthy behavior with decreases in premiums and other bonuses, instead of increasing premiums on those at higher risks. However, the infrastructure to rate individuals based on their specific health profiles is in place.
Health insurance works for people with chronic illnesses like serious mental illness, diabetes, heart disease and cancer because high premiums charged to healthy individuals subsidize the premiums charged to sicker people.
Unlike auto or home owner’s insurance, which are individually rated based on the individual’s claims experience, health insurance is group rated, making it more affordable to people who claim way more than they will ever pay in premium.
If you have a medical condition that requires regular treatment for maintenance and think insurance is expensive now, imagine what it would cost if the rate you pay was based only on the likely cost of a condition known by the insurance company before they rate you, and on your health outcomes during the policy period.
Everyone knows that if you have an accident your car insurance rates go up, as do your homeowner’s rates if you make a claim. This doesn’t presently happen with your health insurance if you’re diagnosed with a disease that will require very expensive treatment.
With health insurance, up until now, if you cost more you don’t pay more, and if you cost less you don’t pay less.
The Affordable Care Act prohibited health insurance pricing based on gender or health status, but did open the door to price discrimination by allowing pricing based on age, tobacco use, family size and geography.
Annual biometric screenings (a blood test and a questionnaire) required by most major health insurance companies and other forms of data collection made available to these companies have allowed insurers to know an incredible amount of information about the predicted claims experience of each covered life.
The stage is set to price an individual’s health insurance based on the likely cost of care to the insurer of that individual.
While the possibility of finding ways to charge sick people a lot more lurks in the shadows, the first moves by insurers into this space have come as price reductions based on healthy lifestyle.
Vitality Health, and insurer with 4.4 million clients, uses data collected by wearable devices such as Apple Watches to report clients’ behavior and workouts to the company. Premium incentives and other rewards are offered to clients based on this data and biometric screenings.
The final price paid, through premium reductions, not increases, is based on a client’s wellness.
This worries my cautious nature a little bit. I see it as corporate ownership of my most intimate health information and an end-run around HIPPA laws. But Forbes reports the following results from one employer which uses Vitality:
- $4.7 million in medical cost savings
- 23% increase in verified workouts
- 92% increase in engaged participation levels
Vitality says this is as important to their clients’ health as it is to their bottom line. A Rand study of Vitality’s method of combining behavioral economics with technology found a significant increase in the number of active days per month by participants in the study.
So there you have it. Right now, the more information you disclose to a health insurer and the more you work on wellness, the lower your total healthcare and wellness costs. You can see this as a positive step toward health and savings, or another big data fueled foray into behavior manipulation.
This data enables health insurance companies to more accurately predict what they’ll pay out in claims. It also enables them to identify the individuals who are going to cost them the most. Insurance companies are only beginning to reveal what they will do with this information.