When Fairness Trumps Diversity, We Lose Both

There are two contradictory themes echoing through today's Western society.  We're supposed to celebrate diversity, but we're also supposed to value equality and fairness.

"Diversity" means "unlikeness;" celebrating diversity means respecting and valuing the many ways in which people are different.  "Equality" means "sameness".  Valuing equality means wanting people to be alike, or treating them alike no matter how different they may be.

There's an inherent contradiction between the two.  We've seen employment ads which say, "Affirmative Action / Equal Opportunity Employer."  "Affirmative action" means hiring someone from a favored group even though that person may be less qualified than an applicant from an unfavored group.  "Equal opportunity" means giving each applicant an equal chance based on qualifications such as their character while ignoring such considerations as race, creed, color, or national origin.

An employer can practice either affirmative action or equal opportunity, but the two are logical contradictions; if you have one, it is logically impossible to have the other.  We can't have both at the same time.

Diversity or Fairness in Health Care?

In an October 29 article "Women Buying Health Policies Pay a Penalty," the New York Times wrote:

Striking new evidence has emerged of a widespread gap in the cost of health insurance, as women pay much more than men of the same age for individual insurance policies providing identical coverage, according to new data from insurance companies and online brokers. [emphasis added]

"Identical coverage" is meaningless when speaking of men's and women's health insurance.  Even putting aside maternity costs, women and men are biologically different.  Men have lower rates of breast cancer, for example.  Men visit doctors less frequently and die younger than women do.  These inherent differences lead to gender-specific differences in health costs.

In general, insurers say, they charge women more than men of the same age because claims experience shows that women use more health care services. They are more likely to visit doctors, to get regular checkups, to take prescription medications and to have certain chronic illnesses.

Marcia D. Greenberger, co-president of the National Women's Law Center, an advocacy group that has examined hundreds of individual policies, said: "The wide variation in premiums could not possibly be justified by actuarial principles.  We should not tolerate women having to pay more for health insurance, just as we do not tolerate the practice of using race as a factor in setting rates." [emphasis added]

Ms. Greenberger is referring to the fact that black people used to be charged more for life insurance than whites.  Accusing insurance companies of racism ignores the fact that blacks die younger than whites.  In forcing life insurance companies to ignore race in setting life insurance premiums, the government made life insurance more expensive for whites than was justified by their longer life span.

In a current example of diversity being valued over fairness, it's well known that young males are far more likely to have automobile accidents than young females.  Young men pay more for auto insurance than young women because they cost more.

Similarly, most insurance companies offer discounts for new teenage drivers who can prove excellent grades in school because statistics show that diligent students are also more diligent behind the wheel.  Charging risk-appropriate rates for insurance is an illustration of diversity in action; charging everybody the same rate regardless of individual risk illustrates equality and fairness.

The fact that medical care is more expensive for women than for men is well known:

Mr. Bykerk, a former executive vice president of Mutual of Omaha, said, "If maternity care is included as a benefit, it drives up rates for everybody, making the whole policy less affordable." [emphasis added]

This underlies another problem with health insurance - every Tom, Dick, and Harry lobbies legislators for laws which require that his or her favorite disease be covered by health insurance.

Most of the lobbying is done by medical associations.  Podiatrists, for example, want podiatry to be covered.  Acupuncturists lobby for acupuncture reimbursements, and so on.

Many years ago, the state of Massachusetts changed the law so that mental health treatment had to be covered by health insurance whether customers wanted to pay for mental health coverage or not.  This was a red-letter day for therapists because patients no longer had to pay for treatment themselves.  Mental health treatment became far more common; health insurance costs went up for everybody whether or not they wanted to purchase coverage for mental health services.

On November 3, 2008, the Times escalated the rhetoric with "Gouging Women on Health Insurance" which argued:

Insurance companies long ago stopped charging premiums based on race, even though they offered similar actuarial arguments.  There are laws against using gender to set rates in employer-based health insurance.  Surely it is time to eliminate gender-based premiums in the individual health insurance market as well.  Otherwise women, who typically earn less than men, may find themselves priced out of adequate health coverage.

Insurance distributes risk across a pool of participants.  For this to work, there must be enough people paying more in premiums than they cost to pay for those who cost the plan money.  In life insurance or in health care, that means you need more healthy, long-lived people than sick people or the plan collapses.

The reason insurance companies stopped charging race-based premiums wasn't because black people started living longer; laws were passed which forbade charging blacks based on the costs they imposed on the system.  This lowered insurance rates for blacks and raised rates for everyone else.

Blacks were about 10% of the population so the price increase wasn't as significant for the rest of society as it could have been.  Women, however, make up half the population.  Equalizing women's health insurance premiums would raise the cost for men a lot more than equalizing insurance premiums across races.

Women impact the health care system more than men do.  Charging women more money may not seem "fair," but it's a realistic application of diversity.  The Times is arguing that rates should be equalized and that men should subsidize women's health care as whites subsidize black people's life insurance policies.  Won't raising rates for men in order to lower rates for women make it harder for men to afford health insurance?

The difficulty with cross-subsidies and with the way we handle health insurance now is that if people do not pay their own medical expenses, they have no incentive to economize.

When the government made more money available for student loans, college tuition went up, faculty salaries went up, and teaching loads went down.  Administrative overhead went up, and the pay of college presidents went through the roof - yet, for all the additional money dumped in, there's no evidence that educational results have improved.  The same thing will happen if government throws money at health care without fixing the systemic problems which government has caused through ill-considered regulations.

In "Of horse's teeth and liberty," the Economist says:

But rules relating to health, safety, the environment and national security have multiplied. Some of these are necessary, but many are not. For example, by one estimate, American health-care regulations cost $169 billion a year more than they yield in benefits, and lead to 7m Americans not being able to afford health insurance. By another estimate, measures to keep terrorists off aeroplanes cost lives by prompting people to drive instead of fly, which is nine times more dangerous.

And even the worst regulation usually heaps benefits on a small group, while its costs are widely spread. The beneficiaries thus lobby hard to keep each rule, while its victims do nothing. The late Mancur Olson, an economist, predicted that interest groups will grow in number until they cause their host society to slip into economic decline. [emphasis added]

It's both natural and cost-effective for insurance companies to exercise diversity by pricing policies differently according to risk.  If we overemphasize equality and pass laws to equalize medical insurance rates so that people don't have to bear the costs of their individual characteristics or decisions, medical costs go up for everybody.

As government regulations squeeze diversity out of society in favor of equality, we'll all end up equally poor.  That'll be "fair", but not very pleasant.

Which are we going to have, equality or diversity?  We can't have both.