Arnold Kling  

Becker on Health Insurance

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Nobel Laureate Gary Becker writes,


Long-term health insurance with individual plans is uncommon mainly because health insurance companies cannot force customers to make a long-term commitment. If a person has experienced good health, he may seek a cheaper plan with another company that would reward his additional years of good health, an experience that his original plan could not fully anticipate. Given such "adverse selection", health insurance companies are discouraged from offering long-term insurance.

I disagree. In Crisis of Abundance, I suggest that an insurance company could offer a policy with a five-year cumulative deductible. You pay a premium in 2007, and if your health care expenses exceed the cumulative deductible at any point in the next five years, the insurance kicks in.

Generally speaking, though, I certainly agree with Becker that health insurance needs to be long term. He points out that this an advantage of employer-provided health insurance over current individual plans.

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COMMENTS (5 to date)

Your speculation suggests how insurance might cure social ills -- in a free and unregulated environment. I agree that truly free-market insurance could cure many social ills.

But, to the extent that your blog tries to participate in the democratic process of policy formation, then perhaps your blog should accent how insurance companies are crippled by government regulation. Terms of insurance are regulated. Settlement of claims is decided ultimately by government courts.

It is fantasy to propose terms that insurance companies might offer, just because those terms make sense to you and me, unless you assume those companies operate in a free market environment. In the US, on the other hand, our pet terms would fall, being either disallowed in the offering or ignored in the settlement.

eddie writes:

[..] health insurance needs to be long term. He points out that this an advantage of employer-provided health insurance over current individual plans.

Perhaps among economists, judges, and academics. Meanwhile, in the real world, people are spending less and less time working for one employer. The IT field in particular is notorious for rapid job changes. This is a healthy trend; creative destruction and all that, don't you know. Praising employer-provided health insurance because it gives a benefit to employees who stay in the same job for the long-term is like praising the buggy whip makers for their excellent leatherworking skills.

Mark writes:

I certainly agree with Becker that health insurance needs to be long term. He points out that this an advantage of employer-provided health insurance over current individual plans.

It is an even bigger advantage--a much bigger one--of single-payer plans which insure an individual for his or her entire life.

Cyrus writes:

At first glance, it would appear that a single payer would have a strong incentive to pay for effective preventive medicine. But on second glance, one realizes that, insulated from competition, the single payer is also insulated from any consequences of failing to cut costs.

Grzesiek writes:

"I certainly agree with Becker that health insurance needs to be long term. He points out that this an advantage of employer-provided health insurance over current individual plans."

Why the focus on employer-provided health insurance? It seems to me that health insurance should be tied to the individual, not the employer.

"At first glance, it would appear that a single payer would have a strong incentive to pay for effective preventive medicine. But on second glance, one realizes that, insulated from competition, the single payer is also insulated from any consequences of failing to cut costs."

I totally agree... And does universal health care allow the patient timely service? How long does one have to wait in a queue (if at all) before an office visit is possible? How long after that office visit will either a follow-up visit or treatment occur?

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