Re: Actuarial principle in pensions and health insurance
Topic: Social or individuals
    Anyone who has lived since the 70's has to be aware that there is a fundamental shift in America since that period.  We are gradually eliminating the shared elements of our economy that provided security and requiring everyone to manage these needs as individuals.  These include pensions, paid health care, and the proposed privatization of social security.  These are to be replaced by 401k, health savings, and individual private accounts respectively.  These trends are promoted by an ideology of individual responsibility and weath–that everyone should be responsible for themselves and that their wealth or lack thereof is due to their own actions.  In this view, one should be encouraged to accrue investment savings and wealth on their own and use what is necessary for the stated purpose and bequeath the remainder to their heirs.  The prior view was that everyone has potential needs for support in old age and/or health care.  Moneys should be set aside for members of productive society to meet those needs even if they may not live long enough or become sick enough to draw on those funds.  Their heirs will have to make a living or draw from other sources of inheritance.  
    The critical factor missing from this debate can be termed the actuarial process.  That process applies in life insurance which determines how many policy holders will die early in the term vs. those who will live beyond that term until the company has made more money in premiums tha n paid out to the less fortunate.  Of course if you belong to the group with long life you have “wasted” your premiums.  Annuities also are calculated actuarially.  A large sum of money is converted to monthly payments for life.  If you die young, your investment is essentially supports benefits paid to those who live a long period of time.  In the same way, health insurance relies on premiums paid for those who are healthy and receive no services in order to pay for those who become sick and need care.  Hence the young are more likely to forego insurance while companies avoid elderly employees who will raise insurance premiums to cover their greater health care needs.
    Actuarial interpretations are quickly accepted for private plans but our social policy debate ignores the implications.  The clear difference between pensions and 401k plans is that a pension will provide more income for those who live because it saves on payments to those who do not.  Similarly paid health care provides better coverage than a medical savings account because of premiums paid by those who need no care.  Furthermore, funds that are passed on to heirs are a diversion from the purpose they were estalished, old age support or health care.  Pensions take advantage of large investments by professional managers whose returns cannot be matched by individual investors.  Health insurers negotiate lower rates for services which are not available to individual patients.

    At the same time, social welfare programs went to an extreme in supporting those who were more than able to support themselves.  An interesting anecdote involves a policy to permit teenage mothers to collect welfare by leaving home and living independently.  In the early 90's this was reversed to require any support to be paid within their parent(s) home.  The policy was justified by stating that this would allow them to escape abusive families but in most cases it simply allowed them to gain freedom from parental control and may even have encouraged pregnancy.