Thursday, August 20, 2009

A Question About Private Health Insurance

Cafe Hayek has a wonderful post on private health insurance. A reader named Tom commented thusly:

Imagine we had entirely private health insurance market – no Medicare or Medicaid. If I live to be sixty-five, I will probably have a personal and/or family history that indicates a strong probability of developing an expensive chronic condition. I would wager that is true of almost all sixty-five year olds.
So here is my question: which insurer in their right mind would take on my risk?
I suspect none. Once philanthropy and savings were exhausted, I would surely risk a painful life and preventable death.
Do I want this? Does anyone? Isn’t “socialized” medicine for older people an unpleasant moral necessity for our wealthy society? Please note I am deeply suspicious of most arguments cast in moral terms in discussions of politics and economics. I ask these questions guardedly.

Russell Roberts encouraged some of his regular commenters to respond to Tom's concern with excellent results. Here is one of my favorites by a commenter named aleksanderhansen:

Tom,

I will give one (out of many) potential solution. Will insurers simply stop offering coverage to these individuals less they pay very high premiums?

One solution to your problem would be to enter into an insurance contract today which guarantees you continued coverage when you reach that age. On one hand, such an insurance policy might have premiums that are, ceteris paribus, higher than other insurance contracts to compensate the insurer over time for the (increasing) probability of you developing a condition in the later stages of your life. On the other hand, the fact that you are committing to a very long-term contract benefits the insurance company - they will have a secure income stream for a long time. This would exert downward pressure on the premiums.

Along similar lines one might also imagine a futures market for insurance, i.e., you buy a contract today which guarantees you coverage when you reach a certain age, at an agreed upon price.

Some of the other comments which address free market solutions to health care are excellent so go check out this post.

3 comments:

Divinity Avenue said...

I think what a lot of people miss in this whole debate is that those of us opposed to the current healthcare legislation are not opposed to healthcare reform. We merely don't believe that the answer Obama and congress are proposing is the right answer.

I don't want my insurance company do drop me in my time of need either, I just want a solution that doesn't involve the government in charge of doling out healthcare

VH said...
This comment has been removed by the author.
VH said...

Well said, Divinity. I agree. I want reform, I just don't want what Obama and the Democrats are pitching at us; it's going to fail at driving down costs.