You're asking insurance companies to either assume that patients are being completely truthful, or to intrusively monitor them to ensure that they are actually being truthful. Do you want insurance company reps setting up video cameras everywhere you go to make sure that you don't smoke? Or that you never go through the drive-thru at Burger King and order the Whopper?

And don't forget that many people aren't paying their health insurance premiums. They're either provided by the government (in the case of Medicare/Medicaid) or by their employer. Of course, Medicare and Medicaid are the precise reasons why the government wants a hand in this -- but you can't really force people to change their behaviors, can you?