Our Insurance Dystopia
Private insurance companies have long dominated the provision of social security in the United States, but resistance is growing.
June 14, 2021
Jun 14, 2021
18 Min read time
Private insurance companies have long dominated the provision of social security in the United States, but resistance is growing.
In 1914, on the eve of World War I, Harvard philosopher Josiah Royce celebrated the utopian promise of insurance. In an address delivered at the University of California at Berkeley, Royce welcomed what he called “the coming social order of the insurer”—a new system of global governance based on the model of mutual insurance. Building on the work of fellow philosopher Charles Sanders Peirce, Royce imagined on the horizon a global “community of insurance” made up of all the nations of the world.
Under this new system, Royce predicted, every nation would contribute to a large insurance pool overseen by an independent world body. The result would not only insure the peoples of the world against future disasters, natural and manmade. It would also help bring them closer together by encouraging a spirit of interdependence and mutual aid—a “genuine community of mankind” that would contribute “to peace, to loyalty, to social unity, to active charity, as no other community of interpretation has ever done.”
More than a risk-spreading mechanism, insurance also functions as a powerful mode of governance.
Forty years later, American science fiction authors Frederik Pohl and Lester del Rey imagined a vastly different insurance future. Their 1955 novel, Preferred Risk, depicts a dystopian insurance era ruled by “The Company,” a massive insurance firm that achieves total global domination, displacing state governments. The Company rises to power by distributing insurance for everything imaginable: hunger, natural disasters, reproduction, war. It rules over humanity by refining every action and consequence down to a scale of precise probabilities, represented in complex actuarial tables decipherable only by experts. Most people embrace the new era, despite being permanently segregated into risk classes that dictate what they eat, where they live, how they work, and who they meet. Others struggle simply to survive. A desperate group of outcasts—the “uninsurables”—live miserably on the outskirts of society, shunned as deviants by those lucky enough to be classified as “preferred risks.”
Neither of these accounts successfully predicted the course insurance would take in the United States over the twentieth century, which was defined instead by complex relationships between private corporations and the state. But taken together, these two visions reveal the range of possibilities inherent in insurance as a system of social governance. Decades before sociologists and legal scholars spoke of “insurance as governance,” Royce imagined insurance as a powerful form of social and political organization. More than a risk-spreading mechanism, he argued, it could also function as a powerful mode of governance, a form of association capable of shaping social understandings of responsibility and dictating relationships between individuals and groups. Yet Royce failed to predict the forces that would oppose the collective nature of insurance and seek to privatize the management of risk and the provision of security. Instead, Preferred Risk proved eerily prescient. From the omnipresence of corporate-controlled data to the plight of “uninsurables” and the risk classification schemes that severely limit access to social goods, Pohl and del Rey’s dystopian vision mirrors our own insurance era in striking ways.
Those dystopian elements are increasingly facing resistance. Calls to check the power of private insurers and more equally distribute access to security have multiplied over the past decade. Gallup polling, for example, shows a steady and significant uptick since 2010 in American support for replacement of private health insurance with a government-run system—support that has reached levels unseen since the 1940s. As we think about how to imagine new insurance futures, we will have to reckon, in particular, with two broad features of insurance provision in the United States: the fraught relationship between the private insurance industry and the state, and the growing power of insurance companies in gathering and wielding data about individuals and groups. Each presents unique obstacles to the more utopian possibilities Royce envisioned.
• • •
The U.S. insurance industry has developed a complex relationship with the state—one that both works to the industry’s advantage and obstructs efforts for reform. Though industry leaders have often expressed fears of government intrusion (whether by competition or regulation), partnerships with government became increasingly desirable for the industry as it grew rapidly after World War II. Many large insurers even welcomed the landmark creation of Medicare and Medicaid in 1965, the first major expansion of the U.S. welfare state since the 1930s. Under these programs insurance companies became primary managers and coordinators of medical services, overseeing a government-funded safety net designed to catch Americans deemed too risky for the private health insurance market.
The burden of providing security for these “bad risks” now fell to federal and state governments, leaving private insurance companies with a consumer base less likely to make claims and less costly to insure. This partnership, the lynchpin of America’s public-private health insurance system, did not challenge the viability or profits of the private insurance industry. In fact, as historian Christy Ford Chapin argues, it helped legitimize the previously contested private insurance model—neutralizing, at least for a time, calls for universal insurance programs that would cover all Americans.
Many large insurers welcomed Medicare and Medicaid in 1965, as they did not challenge private markets so much as legitimize them.
Partnerships in which commercial insurers in other fields worked with or subcontracted for government became common by the 1970s. Laws requiring private insurance coverage before driving a car or buying a home, for example, granted the insurance industry immense power to shape the lives of Americans and determine who had the ability to maintain property and build wealth. Critics of these laws and other insurance practices faced serious obstacles, including a powerful insurance lobby and a state-based regulatory system that made reform on a national level nearly impossible. The 1945 McCarran–Ferguson Act cemented this state-based system, which exempted insurance from federal regulation, including most antitrust abuses—a major reason social movements led by civil rights and feminist activists in in the 1970s and 1980s failed to achieve substantial and lasting reform on the federal level. The insurance industry has fought aggressively over the past seventy-six years to protect McCarran–Ferguson.
State-level consumer activists did eventually succeed in passing strong insurance regulations. In California, for example, a consumer movement supported by Ralph Nader successfully advocated for Proposition 103, passed in 1988. The law required property and casualty insurers to scale back premiums by 20 percent and to seek approval from the California Department of Insurance before setting rates. These reforms saved auto insurance consumers in the state over $100 billion between 1989 and 2013. While other states have attempted to pass similar reforms since the late 1980s, none has succeeded in establishing regulations as far reaching as those in California—in part because of increased pressure from insurance lobbyists. After Prop 103 passed, the industry organized nationally to head off similar legislation in other states, hiring specialized public relations firms and calling on local officials to reject new calls for regulation.
This fraught history of reform has led to enduring social inequities. Despite this victory on premiums, for example, California’s efforts did not eradicate the racial divide in insurance access and pricing that persists across the nation to this day. A groundbreaking ProPublica study in 2017 found that California drivers who resided in minority neighborhoods still paid over 10 percent more for auto insurance than drivers with “similar risk” living in zip codes that were primarily white. In states like Missouri and Illinois, drivers living in primarily minority zip codes paid as much as 30 percent more for insurance than drivers residing in majority-white zip codes.
Such inequalities are deeply imbedded in insurance practice and have been intensified by partnerships with government that prioritize corporate interests over both consumer rights and the social good. As numerous failed efforts to combat insurance discrimination have shown, rampant inequalities in private insurance provision cannot be eliminated by state-level regulation alone. Federal regulation that addresses insurance as a social issue—not simply a consumer one—is needed in order to eradicate systemic inequalities historically baked into insurance marketing, underwriting, pricing, and classification structures.
Yet attempts to repeal McCarran–Ferguson have achieved little success over the past half century, despite calls for reform from consumer rights groups and professional organizations in other industries. These efforts led the United States House of Representatives to pass a bill that would repeal McCarran–Ferguson in 2017. After aggressive lobbying by the insurance industry, the bill failed to pass in the Senate—a pattern insurance critics have witnessed repeatedly over the past several decades. If future reformers hope to change the regulatory structure that governs the industry, they will need to develop tools capable of restraining the insurance lobby, while also attracting support from a public that remains largely ignorant of insurance law and its impact on the lives of most Americans.
Efforts to educate the public about insurance practice and regulation over the past half century have achieved the most success regarding health insurance. The 2010 Patient Protection and Affordable Care Act (ACA) marked a turning point in public discourse surrounding both health care and insurance provision in the United States. During the months leading up to the act’s passage, Americans encountered detailed discussions of premium rating structures, exclusions based on preexisting conditions, financing of long-term care coverage, and other aspects of insurance practice and policy. Though the final version of the act failed to secure universal health coverage (a primary goal of many proponents), it did significantly reduce the number of uninsured Americans under age 65—from more than 44 million in 2013 (the year before most of its requirements went into effect) to just below 27 million in 2016. This reduction was made possible by expanding Medicaid to cover more low-income Americans; by the creation of market exchanges through which qualifying individuals and businesses could purchase subsidized insurance plans; and through regulations preventing private insurers from charging higher premiums or denying coverage to individuals with preexisting conditions.
The 1945 McCarran–Ferguson Act cemented a state-based system, exempting insurance from federal regulation.
But millions still lack coverage or struggle to pay high premiums and copays. This is true especially in states that have opted out of the ACA’s federal funding for Medicaid expansion. Though the expansion was intended to be national, a 2012 Supreme Court ruling made it optional for states, leading many Republican-controlled state legislatures to reject expansion. Between 2016 and 2018, these states—many of which are located in the South and are home to large numbers of low-income people of color—witnessed a significant increase in uninsured residents, while states that accepted expansion saw a decrease.
These disparities, and many of the ACA’s basic features, represent a continuation of historical trends toward privatization—not the departure from the past claimed by proponents hesitant to embrace more sweeping change. The enthusiasm of ACA architects for “market-based solutions,” exemplified by the creation of online insurance exchanges, extends decades-old industry efforts to expand private markets and limit public options. Joel Ario, director of the Office of Health Insurance Exchanges under President Barack Obama, argued that one of the key goals of the ACA was to replace the “welfare model” of health care provision with an industry-based “insurance model.” Ezekiel Emanuel, Obama’s special adviser on health care reform during the years the ACA was developed, shared this sentiment, arguing in 2014 that market exchanges would eventually produce an “Amazon-like” shopping experience that would generate “positive branding” and ultimately replace both public insurance and employer group plans.
Despite these limitations, Americans have welcomed the act’s preexisting conditions ban and accepted the notion that access to health care should not be restricted to those with favorable risk ratings. As of 2020, 63 percent of Americans polled by the Pew Research Center believed that it is “the federal government’s responsibility to make sure all Americans have health care coverage.” A reinvigorated and growing belief that health care is a human right—one that should not be contingent on the ability of corporations to make profits—stands to fundamentally reshape the relationship between private insurance and the state.
• • •
Another troubling feature of insurance provision today is the insurance industry’s increasingly powerful uses of our data. The collection and management of data about individuals and groups has long been a central component of insurance practice. As the historian Dan Bouk has shown, insurers have relied for over a century on information about populations in order to determine who is considered an acceptable risk, how much insurance to sell them, and at what price. Life insurers led the charge in this process, drawing on historical group, class, and racial characteristics, as well as medical information and mortality data, to manage and price policies held by hundreds of thousands of Americans before the turn of the twentieth century.
As is often the case in insurance history, other fields in the industry followed the lead of the life insurance sector. Property and casualty insurers followed life insurers in seeking out more refined classification structures—and in turning to public service initiatives as tools for gathering data and shaping consumer behavior. These companies used information collected in postwar driver education classes, for example, to set rates and sell policies. The Aetna Casualty and Surety Company’s Drivotrainer course, designed in the 1950s, represented a particularly successful effort to systemize and quantify driving while also offering a means of gathering data on driver behavior. Indeed, the Drivotrainer simulator served as an early model for the development of telematic devices, which became popular data collection tools for the auto insurance industry in the early 2000s.
These devices, installed voluntarily in the vehicles of insurance consumers, gather data about braking behavior, driving speed, mileage, distance driven, and the time of day when a vehicle is in use. Premium discounts for consumers who install such devices have helped boost their popularity, despite concerns surrounding privacy—and the fact that insurers admit to selling recorded data to third parties. Like wearable fitness trackers and wellness apps, telematic devices are widely advertised by the insurance industry as evidence that insurance rate setting is fair and based on an individual’s ability to responsibly manage their own risks.
Federal regulation that addresses insurance as a social issue—not simply a consumer one—is needed in order to eradicate systemic inequalities.
Not all data used by insurers to price and classify risk is based on behavior individuals can easily control, however. For decades most insurance companies have based underwriting on broad group characteristics such as sex, age, and geographical location. By the 1960s, property and casualty insurers had developed rating structures that priced policies differently for older women and younger men, urban and suburban residents, divorcees, widows, unmarried cohabitating couples, and married couples with and without children. Today insurers continue to seek out new data sets and ever more refined classification schemes on which to base underwriting decisions. Credit scores are widely used to price auto and home insurance, for example: companies regularly charge consumers with low credit scores two, three, or even four times as much for coverage than consumers with higher credit scores and “equal risk.” Though consumer advocates argue that credit-based insurance rating is unfair because such data has little relation to the risks associated with driving or homeownership, the industry has successfully evaded regulation of the practice in all but a handful of states.
Technological change and a growing willingness on the part of Americans to surrender personal data are also reshaping insurance practice. Life insurers began drawing on data gathered through wearable fitness trackers like Apple watches and Fitbits in the early 2010s. Though insurance-based use of these devices began on a voluntary basis, some life and health insurers have recently moved to make fitness trackers compulsory for policyholders. The life insurance giant John Hancock, for example, made waves in 2018 when it announced that future consumers will be required to purchase “interactive policies” that include use of fitness trackers and wellness apps designed to ensure that policyholders actively maintain healthy lifestyles.
The potential for discrimination and abuse of data collected by fitness trackers is stark. In 2018 the state of West Virginia announced plans to revise its public workers health program, requiring all employees to use a fitness tracking app or pay an annual $500 fee. A historic nine-day strike launched by the state’s teachers’ union, which opposed the new health plan, scuttled the program. Without further resistance, however, others like it will no doubt become widespread in coming years. In 2019 Fitbit announced a new product: a wearable tracking device, Inspire, that will be made available to participating corporate employees and health insurance plan members. For workers employed by companies that adopt Fitbit-based health plans, the use of such devices will not likely be voluntary.
Attempts to regulate risk classification and data collection have achieved only limited success over the past fifty years, but resistance to these practices is growing. The increased availability of genomic data has set off warning bells that insurance companies may use genetic testing to discriminate against individuals with genetic risk indicators. As insurance law scholar Tom Baker notes, “While some ‘low risk’ individuals may believe that they are benefited by risk classification, any particular individual is only one technological innovation away from losing his or her privileged status.”
Forced to seek security via the private market, Americans have instead been exposed to its whims.
Such fears spurred the 2008 Genetic Information Nondiscrimination Act (GINA), which forbids health insurers from using genetic information for risk classification and pricing. But the limitations of the bill are striking. It does not apply to those who receive health insurance through military service, the Veterans Health Administration, or the Indian Health Service. It does not protect against genetic discrimination in life, disability, or long-term care insurance. And it exempts “employee wellness” programs—a loophole that allows employers to use genetic tests to identify employee health risks and charge those who refuse testing hundreds or thousands of dollars more per year for coverage.
Will attempts to combat discriminatory use of data meet the same fate as earlier attempts by civil rights and feminist activists to abolish risk classifications based on sex and place of residence? Political will is often identified as a crucial factor in advancing regulation, but the success or failure of future battles with the industry will depend on more than the willingness of regulators to act. To attract widespread public support for change, insurance critics will need to challenge industry justifications for surveillance and risk classification that have circulated for decades. Understanding the complex historical contexts in which these practices developed—and the various strategies insurers have used to defend them—will prove valuable in coming fights with the industry.
• • •
By the mid-1990s, sociologists of risk and insurance had identified a large-scale shift in Western capitalist societies, away from compensatory “insurantial logics” and toward the “embrace of risk.” This argument, popularized by Baker and sociologist Jonathan Simon in their 2002 book Embracing Risk, emphasized the celebration of risk taking, particularly among elites, that became prevalent in the United States and other nations during the 1980s and 1990s.
Baker and Simon’s work remains relevant today, but it largely overlooks the negative impacts of the privatization of risk. To speak of “embracing risk” suggests a choice, but many Americans have never had one. Forced to seek security via the private market, they were exposed to its whims. It was precisely the risk-taking behavior of financial elites that caused the Great Recession, and a privatized security system designed to shift the burden of risk onto individuals and away from corporations and government—a process political scientist Jacob Hacker calls the “Great Risk Shift”—only deepened the consequences of the economic crisis. The result has harmed most middle- and working-class Americans, who have been forced to take on the heavy burden of achieving security on their own, distanced and divorced from the collectives that might have offered a base to stand on.
Growing resistance to insurance profits reminds us of our power to care for one another.
The situation is not all bleak, however. Increasing precarity and exposure to risk have led to resistance, particularly among younger Americans. Calls to further regulate the insurance industry and politicize risk classification, to remove profit from the pursuit of security, and to build and expand public insurance programs have greatly multiplied since the financial crisis, and health insurance has emerged as a major site of activism and policy discussions in recent elections. This activism differs from earlier efforts in its willingness to directly challenge the profit motives of insurance companies, and crucially, in its calls to abolish private health insurance as an industry. Nationalization of health insurance in the United States may very well lead to calls for expansion of other public insurance programs and the nationalization, or significant reform, of other insurance fields.
How might we build on this momentum to bring about a new insurance era? The first step will be understanding the basic workings of insurance and the often hidden role it plays in our lives. Insurance has long served as a reminder of the pervasiveness of uncertainty and our helplessness in the face of chance. But it also emboldens us as agents with the power to care for one another and to compensate for misfortune through collective means. What we do with that power will depend on our willingness to imagine futures that look different from our present—futures less like Pohl and del Rey’s vision of a society infinitely divided, and more like Royce’s dream of a human community that rises or falls together.
Editors’ Note: This essay is adapted with permission from Insurance Era: Risk, Governance, and the Privatization of Security in Postwar America by Caley Horan, published by The University of Chicago Press. © 2021 by The University of Chicago Press. All rights reserved.
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June 14, 2021
18 Min read time