I’m a libertarian and my general stance is that we should try free market solutions first and then, if those don’t work, look to the government. The  main problem I have with government is that when they change the rules of the game, they change the way people behave and that creates new problems — which invariably call for more government intervention (spend more on education because we’re not getting good outcomes!) instead of less. For example, taxing high incomes but not bonuses caused Wall Street to change their whole pay structure so that now executives get huge bonuses. The government didn’t like that, so they tried forcing companies to offer stock instead of cash, so that executives have a stake in company performance. But that just increases the reward for cooking the books to make the stock overvalued. So now they have to have new accounting rules and other ways of trying to fix that problem, using “clawback” features and trying to base bonus pay on long-term stock performance instead of short-term performance. That will invariably cause another problem they’ll try to fix. It’s not that the goverment TRIES to screw things up — it’s just that they end up doing that because they fail to account for how people will respond to changes in laws that change their incentives.

Now this from the bill in the Senate Finance Committee makes me reconsider the notion that nobody in Washington understands incentives:

Under current regulation, incentives based on health factors can be no larger than 20 percent of the premium paid by employer and employee combined. The legislation passed by the Health and Finance committees would increase the limit to 30 percent, and it would give government officials the power to raise it to 50 percent.

and

Douglas J. Short, BeniComp’s chief executive, said the incentives he uses focus on outcomes, not conditions.

“I can’t give you an incentive based on being a diabetic or not being a diabetic, but whether you’re managing your blood glucose level — I can give you an incentive based on that,” Short said.

I understand the concern that people wil pre-existing conditions have, but I also understand the perspective of health insurance companies. If insurance is supposed to be for things beyond your control (like flood insurance, for example, which is completely beyond my control as a homeowner), then insurance companies base rates on observable characteristics and statistics. If I live in a flood plain, they charge me higher rates — not because of anything I did but because the risk is higher.

And in some cases, that’s what health insurance is. I could get cancer, fall down and crack my skull open or any number of things. And the premiums I have paid will cover the cost of the treatment — I use health insurance to smooth my payments for medical care over my entire life rather than have massive expenditures every once in a while. But when I have a pre-existing condition, the risks and expected costs are higher. Granted, there may be nothing I can do about it, but forcing health insurance companies to take people with pre-existing conditions at the same rates as everyone else is forcing health insurance companies to pay for something that will make them lose money overall on that person. How is that fair to them?

Back to the story, and my main conclusion: I love this. We’ve become a society of people that mostly eat too much and exercise too little because, well, we can. I like the compromise the Finance bill makes: force insurance companies to take everyone but allow them to charge higher rates to people whose behaviors are resulting in higher costs. If you are overweight and eat fast food 5 times a week, and put yourself at higher risk for heart disease, why should your insurance company bear that risk? They shouldn’t — you should. Many companies have tried incentivizing good behaviors, like paying for part of a subscriber’s gym membership fees if the person exercises at least twice a week. That’s all well and good. But in addition to carrots, sometimes you need sticks.

As a libertarian, I believe you have the right to do whatever you want with your body and your property, as long as nobody else has to bear the costs of your actions. If we legislate a health insurance system where insurance companies are forced to take you regardless of your condition, there should still be a way of making you pay for the poor health choices you make from that point on. The Finance bill seems to recognize this.