Health Insurance Regulatory Crisis

it is illegal for a health insurance company to "discriminate" on the basis of risk, other than using age or some other broad category

The real problem is the opposite. It is discrimination on the basis of risk based on such narrow categories that insurance becomes only a prepayment plan, or even a payment until termination plan, generally by you when you can no longer afford the premiums. The annual premium model undermines much of the utility of insurance since conditions often persist over longer periods.

The annual premium model undermines much of the utility of insurance since conditions often persist over longer periods.

You and I have a very similar view of insurance. In my book, I spell out some ideas for multi-year catastrophic health insurance.

The problem with the main argument in Crisis of Abundance as outlined here is that allowing insurance purchases to exclude certain coverages results in adverse selection resulting in higher premiums in all categories. The whole point of insurance is subsidization; that is, we have a pool of people pay, but only a small subgroup actually uses the service.

I concur with Kling. Our premiums are pre-tax by employers, while service payments are made by a third party. Why would the user ever worry about price?

The whole point of insurance is subsidization; that is, we have a pool of people pay, but only a small subgroup actually uses the service.

This is confusing ends with means. The "point" of insurance is to transfer risk. Pooling is the mechanism that makes such transfers possible, by having all members of the pool exchange the certainty of a small defined loss (by way of premium payments) for the uncertainty of a potentially large one.

But pooling is not the same thing as "subsidization." An effective pool will made up of relatively homogenous risks. Where there isn't, where you see great disparity among insureds in either the potential severity or potential frequency of a given covered peril, THAT'S where you'll see adverse selection, as those with smaller, less frequent risks will opt out of subsidizing those with larger and more frequent ones.

That's why insurers look to segment risk, both in through their underwriting criteria, and in their rate-making structures.