Health-Status Insurance: How Markets Can Provide Health Security
by John H. Cochrane
None of us has health insurance, really. If you develop cancer or heart disease, have a stroke, or discover a genetic problem; if you have any long-term disease; if you then lose your job, are divorced, or just outgrow your parents’ plan, you can lose health insurance. You now have a pre-existing condition. Insurance will be enormously expensive if it’s available at all. This fact is, I think, the single most powerful force pushing us toward some sort of nationalized health insurance system or additional layers of intrusive regulation.
There are three keys to letting markets provide long-term health insurance. First, we must remove restrictions on risk-based premiums, so that sick people pay higher premiums than healthy ones. Second, and most critically, we must clear the way for markets to offer “health-status insurance” which, in exchange for an upfront payment, will give people the money to pay higher medical-insurance premiums if they get sick. The bulk of this article describes in detail how the combination of medical and health-status insurance works, how it how it could provide truly lifetime, portable insurance, and how it would foster an unprecedented level of competition in health care, even for the sickest of patients. Third, we must remove the legal and regulatory artifacts that favor employer-based insurance or other long-term pools over individual-based insurance.
These steps are the opposite of most current policy proposals, which would further limit risk-based pricing, force insurers to take all comers, strengthen employer-based or other pools, or introduce national health insurance. Those proposals can only help to solve the long-term insurance problem by destroying market competition – the only force that can continuously deliver better medical care at a lower cost.