Sunday, November 22, 2009

Incentives for buying health insurance when healthy

My colleague Marty Feldstein worries in the Washington Post about potential incentive mis-alignments in new health care legislation: Obamacare's nasty surprise-Fewer insured, higher costs might be the result

"Here's why: A key feature of the House and Senate health bills would prevent insurance companies from denying coverage to anyone with preexisting conditions. The new coverage would start immediately, and the premium could not reflect the individual's health condition.
This well-intentioned feature would provide a strong incentive for someone who is healthy to drop his or her health insurance, saving the substantial premium costs. After all, if serious illness hit this person or a family member, he could immediately obtain coverage. As healthy individuals decline coverage in this way, insurance companies would come to have a sicker population. The higher cost of insuring that group would force insurers to raise their premiums. (Separate accident policies might develop to deal with the risk of high-cost care after accidents when there is insufficient time to buy insurance.) "

HT: Mankiw


dWj said...

Related community rating in NY gives us some of the highest insurance rates in the country. Although this sounds much worse.

Anonymous said...

Such side-effects are well worth a thought. As to my understanding though, the new package fights this for example by expanding number employers who offer insurance as well as other methods so that healthy people get the plan. After all, the point is to get more people under insurance - not less. The statement about having to offer the insurance for anybody is there because of the need to ensure there are no cherry-pickers.

Happy to see there might actually be a new legislation. Coming from a country with full state-funded healt insurance that costs far less money per capita (Finland) I can't but wonder at the lobbying power the insurance companies have in the US.

charlesdowney said...

If you only know where you should look, it is not impossible to find a low cost health insurance. Aside from being able to find an insurance that will not break your bank, you will also not need to sacrifice your coverage, or risk being under covered.

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