Health-Status Insurance: How Markets Can Provide Health Security
by John H. Cochrane
None of us has health insurance, really. Most Americans have an employer-provided health plan, or have that coverage through a spouse or parents. But if you get cancer, heart disease, HIV, have a stroke, discover a genetic defect, or develop any other long-term expensive health problem; if you then lose your job, are divorced, or just outgrow your parents’ plan, you can lose that health insurance. You now have a pre-existing condition. Insurance will be enormously expensive if it’s available at all. This happens, to real people. A significant health problem is a common root cause of catastrophic economic descents in the
This fact is, I think, the single most powerful force pushing us toward some sort of nationalized health system, or additional intrusive regulation of health insurance and delivery markets. There are plenty of other pathologies with our health sector: the uninsured, hospitals’ hotel-minibar pricing policies, poor information, the drudge of useless paperwork, cost recovery of new medicines, and so on. But all of these are fairly clear problems, each limited in its reach, with fairly clear remedies. The lack of real insurance, by contrast, seems a harder nut to crack. Unlike the uninsured, which for most of us is a problem of how to deal charitably with other, improvident people, the lack of real insurance confronts us all. No matter how prudent you are, you cannot buy insurance against long-term health risks.
Is there really no free-market remedy? Is the only answer to rely on the government to provide health insurance, or to have the government intervene even more massively in private contracts? The answer is no, and my main purpose here is to outline how deregulated insurance markets can cover lifetime health risks.