Segregating people is how insurance works

Senator Tom Harkin said this yesterday at the health care summit: "It's time to stop segregating people on the basis of their health".

But again, "segregating" people is how insurance works. The guy with the house on the beach will pay more for homeowners insurance than the guy who lives inland. A teenager will pay more for auto insurance than a 35 year old. The person with a cancer history will pay a lot more for life insurance than someone with a clean bill of health. It's not about getting as many people into the largest possible pool, it's about identifying risk factors and charging premiums accordingly. The process of segregating people into risk pools is how insurance companies keep premiums low for the most number of people.

Furthermore, in a free market, what we should see is specialization among carriers. For example, certain carriers would serve the mass market, while others would be niche players, specializing in providing insurance for various higher risk customers. An insurance company that specializes in higher risk cases would probably look very different from a mass market carrier in terms of its operations, product design, risk management, capitalization, the expertise of their employees, etc. State regulations, however, don't allow insurance companies to look different, and the health care reform being debated in Washington would make that problem even worse.