Economics and the “Gender Gap” in Health Insurance

Women pay more for health insurance than men, at least unless the law specifically precludes it.  On March 19, the New York Times featured and article by Robert Pear on “gender gaps” in health insurance that rediscovered this fact of life.  He then writes “The new health care law will prohibit such ‘gender rating,’ starting in 2014. But gaps persist in most states, with no evidence that insurers have taken steps to reduce them.”

The tone suggests that gender differences are pernicious and exploitive; a market distortion that should not naturally exist and thus reflective of insurance industry behaviors that must be regulated.  But data and reasoning suggest otherwise.  Insurance is designed to cover the costs of medical care, and women are more expensive than men.  If two people have identical co-pays, deductibles, and other policy features, the premium will naturally be higher for the more expensive individual. 

To get a feel for this consider the table below, which shows for women and men the average total annual health expenditure by age in 2011.  Specifically, females aged 20 to 24 averaged $2,980, which is 136 percent above the average for comparable-aged males of $1,226.  One would expect their insurance to be correspondingly more expensive.  Look at the remainder of the entries, it is clear that up to age 55 women are a significantly more expensive proposition, and that “gender gaps” are a sensible economic outcome. 

Of course, it is entirely possible to decide that equality in pricing is socially desirable.  If so, the pooling of men and women will inexorably raise premiums for males and lower those for females.  Indeed many states have done so.

The cynic in me suspects that it is no coincidence that the article runs just prior to the Supreme Court hearing oral arguments about the Affordable Care Act, and that it intimates that only the ACA stands between women and insurance discrimination.  Nothing could be further from the truth.   Gender gaps are a natural economic outcome.  And, if one desires a policy that precludes them, the states’ experience proves it does not take a behemoth as destructive as the ACA to eliminate them.