What if health insurance programs rewarded individuals for healthy living?

Most health insurance pools are collectives in which healthy people pay the costs of unhealthy people and rewards for good behavior, whether of the sick or the well, are seldom realized.

Auto insurance companies penalize the irresponsible and reward those who have good driving records. Could health insurance do the same on if the system were less politically skewed?

Yes.

Safeway's CEO explains [an excerpt from the WSJ]:

'At Safeway we believe that well-designed health-care reform, utilizing market-based solutions, can ultimately reduce our nation's health-care bill by 40%. The key to achieving these savings is health-care plans that reward healthy behavior. As a self-insured employer, Safeway designed just such a plan in 2005 and has made continuous improvements each year. The results have been remarkable. During this four-year period, we have kept our per capita health-care costs flat (that includes both the employee and the employer portion), while most American companies' costs have increased 38% over the same four years.

'Safeway's plan capitalizes on two key insights gained in 2005. The first is that 70% of all health-care costs are the direct result of behavior. The second insight, which is well understood by the providers of health care, is that 74% of all costs are confined to four chronic conditions (cardiovascular disease, cancer, diabetes and obesity). Furthermore, 80% of cardiovascular disease and diabetes is preventable, 60% of cancers are preventable, and more than 90% of obesity is preventable.

'As much as we would like to take credit for being a health-care innovator, Safeway has done nothing more than borrow from the well-tested automobile insurance model.'

The majority of employees apparently like it because they are rewarded for good behavior. If we are to become prosperous again, we must make it possible for entrepreneurs to insure themselves and their employees. Right now, entrepreneurs, besides taking on capital costs, must compete in health insurance markets (a major cost in the labor market) with a system rigged for governments, unionized shops, and conglomerates. The big institutions will always have an advantage, but right now, the big institutions can claim large tax deductions for health insurance, but mom & pop businesses cannot. That should change. Insteading of taxing healthcare benefits, let's just make all health-insurance premiums tax-deductible (or none at all).

Kim Strassel discusses the administration's plan to tax healthcare benefits in another column.