The April 20, 2010 Denver Post reports that a proposed Colorado law would allow health insurers to give discounts to customers who choose healthier lifestyles.
The program is still subject to numerous state regulations. So it doesn't create a free market by any means.
In a fully free market, insurers would be able to offer any prices they wished to customers, who would in turn be free to accept or reject those terms.
Many would likely choose to offer steep discounts to healthy customers (who would presumably incur smaller medical bills in the long run) as a win-win. And this would create a virtuous cycle, as insurers competed with each other to lower prices to gain healthier customers, and customers responded to these incentives by improving their health (for both financial and the usual non-financial benefits).
Still, I'm glad to see a proposal to partially reduce the levels of regulation. Insurers and patients should insist on more such proposals.