Arnold Kling  

Critical Care Insurance

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The Wall Street Journal reports on a new form of health insurance.

The illnesses covered under the policies vary. Policies typically insure for certain forms of cancer, heart disease and stroke, but some cover a far longer list of ailments, including coma, paralysis, Alzheimer's, multiple sclerosis and loss of hearing. (Certain conditions, such as benign tumors, may not be covered in all policies.)

The policies provide lump-sum payments that can be used to cover many costs related to illness -- including copayments, travel expenses, experimental treatments or wages of a family member leaving work to help -- that often aren't covered by health or disability insurance.

This idea, which I call event-driven insurance, has a number of merits. It is genuine insurance, in that it covers large risks. It does not reward doctors for ordering procedures. It does not require you to submit detailed bills in order to collect claims, thus saving on administrative costs.

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COMMENTS (5 to date)
Blakeney writes:

This sounds like a revival of the old-style "dread-disease" riders that were sometimes available with individual health policies. You're correct in saying that this is a genuine insurance product, not just because it covers large risks, but because it covers unpredictable risks (I know that's redundant, but you have to be specific in today's world of all-you-can-eat prepaid health "insurance").

Best of all, this type of product leaves treatment decisions in the hands of the patient and his or her physician/chiropractor/voodoo priest. On the other hand, I don't imagine that these policies get any sort of preferential tax treatment unless they're offered through an employer-sponsored plan, which throws a less-than-disinterested third party into the mix. Oh well...

Technologydude writes:

A couple of thoughts. This could be a good thing if it leads to separate insurance plans for those who are merely sick and those who are critically ill. Critical care costs are huge, with questionable returns in terms of quality of life. We keep people alive for a few more months at tremendous cost, while the cost is subsidized by those who are less sick. Let the market determine whether people believe those extra months are worth the costs involved, and only provide that critical care for those covered by this kind of insurance.

The rest of us pay lower premiums for an insurance plan that does not cover extreme critical care costs.

Mcwop writes:

AFLAC has made a small fortune selling cancer insurance policies in Japan.



modo writes:

I would wonder if having people choose which diseases to be covered for (assuming they're any good in predicting what they'll really get sick with) would in the long run divide up the risk pool and make the system unsustainable--for example if premiums rise to the point where it's too expensive for anyone with genuine illness to access insurance.

Tracy writes:

If they are lump sum payments, then it creates a big incentive to pretend to have some disease covered by the condition and collect the payout.

This is why insurers generally go to all the hassle of paying medical bills directly rather than just disbursing money. The set of people who would like a free knee operation just for fun is considerably smaller than the set of people who would like $10,000 just for fun.

Of course cancer, heart disease and stroke may be more difficult to imitate than a bad back, but still people's ingenuity is pretty amazing.

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