Insurance

Conceptually, insurance is based on the idea of a pool of shared risk. At regular intervals, all members of an insurance pool pay money known as premiums so that, when one of the members suffers from a known risk, such as illness, injury, or death, money will be available from the insurance company to designated beneficiaries for the expenses that will be incurred. In order for an insurance company to remain financially sound, it must take in at least as much money in premiums as it pays out in benefits.

In state-run social insurance programs, the payment of identical rates is encouraged based on the argument that the risk must be shared throughout society as a whole. In the private, for-profit insurance market, by contrast, the purpose is to take in more money in premiums than one pays out in benefits. Consequently, those individuals at higher risk are required to pay higher premiums because the company will probably have to make payments to its beneficiaries sooner than for its low-risk counterparts. (This is the rationale, for example, of charging "risk-taking" teenagers a higher rate for auto insurance than more mature drivers). Although statisticians and actuaries speculated on the connection between cigarette smoking and life expectancy throughout the twentieth century, the insurance industry only began to offer nonsmokers lower premiums around 1980.

Early Research

Writing for a largely medical audience in Annals of Surgery in 1931, Frederick L. Hoffman, a consulting statistician with the Prudential Insurance Company of Newark, New Jersey, president of the American Statistical Association, and a founder of what would eventually become the American Lung Association and the American Cancer Society, speculated on the relationship between cancer and smoking habits (see sidebar). Specifically, he wondered whether there was a relationship between the resulting cancer and factors like the kind of tobacco smoked, the daily quantity smoked, the method of smoking (for example, pipes or cigarettes), the date that an individual started smoking, and the regularity or irregularity with which the individual exercised the habit of smoking.

Although Hoffman admitted that it would be difficult to prove conclusively that cigarette smoking contributed to cancer of the lungs, he did note that "those who practice inhaling certainly drive the smoke into the innermost recesses of the lungs. The observed increase in cancer of the lungs during recent years is highly suggestive of its correlation to the immense spread of cigarette-smoking habits." In 1938, a Johns Hopkins University statistician, Raymond Pearl, published a study in which he compared the mortality curves (graphs showing the number of individuals who died at different ages) of smokers and nonsmokers. Pearl demonstrated that individuals who smoked had a shorter life span than nonsmokers. Despite these studies, insurance companies apparently did not, at this time, begin to charge their enrollees different premiums based on their smoking habits.

Frederick L. Hoffman (1865–1946)

F rederick L. Hoffman, who arrived in America as a German immigrant without any specialized education, emerged as an insightful and prophetic authority on American health and welfare throughout the early 1900s. As an insurance actuary working for the Prudential Insurance Company in New Jersey, he was a pioneer in collecting and analyzing statistical data on health and in bringing attention to cancer as a rising public health menace. In 1915, he wrote The Mortality from Cancer throughout the World, the first of his papers that reported cancer linked with a variety of causes, one of which was tobacco. An astute observer of history and humanity, Hoffman based his initial theories on the subject by noting that few women of that period used tobacco and that the majority of mouth, throat, and lung cancer patients were men. He later published Cancer and Smoking Habits, which also promoted the notion that excessive smoking leads to cancer. Ironically, Hoffman himself was a heavy cigarette smoker. He died in 1946, having suffered from Parkinson's disease for nearly two decades.

? DONALD LOWE

Late-Twentieth-Century Findings

The decisive event, which caused insurance companies to reconsider their practice, was the landmark 1964 report of the United States Surgeon General suggesting that there might be a link between cigarette smoking and lung cancer. Based on information contained in the report, State Mutual Life began selling policies to nonsmokers at a lower premium than to smokers. However, it was not until fourteen years later, in 1978, that the company reported that the mortality rates between smokers and nonsmokers were sufficiently large to warrant the differing fee structure. Within two years of the company's announcement, most major life insurance companies (which had been reluctant to charge different rates prior to that time) introduced new, less expensive, policies for nonsmokers.

By 2000, the United States Department of Health and Human Services had developed clinical practice guidelines, which recommended that insurers include tobacco cessation treatment as part of their standard package of benefits to their subscribers. The recommended treatments included both counseling and pharmacotherapy. One of the reasons health professionals have advocated these practices for tobacco cessation treatment, in particular, is that such approaches have been seen as the "gold standard" of preventive interventions; that is, more cost-effective than the treatment for other chronic conditions related to smoking such as hypertension. For this reason, the inclusion of tobacco cessation treatment as part of standard insurance packages could be seen as one of the most vivid examples of the underlying philosophy behind the emergence of managed care—namely, the introduction of cost-saving preventive measures rather than costly medical interventions after a patient has already become ill.

See Also Doctors; Disease and Mortality; Lung Cancer.

? J. ROSSER MATTHEWS

BIBLIOGRAPHY

Brandt, Allan M. "The Cigarette, Risk, and American Culture." Daedalus: Journal of the American Academy of Arts and Sciences 119 (Fall 1990): 155–176.

Fiore, Michael C. et al. Treating Tobacco Use and Dependence: Clinical Practice Guideline. Rockville, Md.: U.S. Department of Health and Human Services Public Health Service, 2000.

Hochschild, Richard. "Biological Age as Measure of Risk." Journal of American Society of CLU & ChFC 42 (September 1988): 60–67.

Hoffman, Frederick L. "Cancer and Smoking Habits." Annals of Surgery 93 (January 1931): 50–67.

Stone, Deborah A. "The Struggle for the Soul of Health Insurance." In The Politics of Health Care Reform. Edited by James A. Morone and Gary S. Belkin. Durham, N.C.: Duke University Press, 1994.

pharmacotherapy a form of smoking cessation therapy that temporarily substitutes other forms of nicotine for tobacco smoke. Withdrawal symptoms are reduced and patients can more easily overcome their addiction to tobacco. Nicotine can be applied through a transdermal patch, chewing gum, oral inhaler, or nasal spray.