On his Substack, Arnold Kling, resident e-book reviewer at Econlib, wrote:
If folks pay for their very own medical insurance, the market is topic to choice video games. The people with probably the most incentive to purchase medical insurance are these that can value the insurance coverage firm probably the most in claims. (Though it seems that there’s a choice impact that goes within the different route. People who find themselves excessive in conscientiousness are extra seemingly each to acquire medical insurance and to take higher care of themselves.) Insurance coverage corporations, by the identical token, have an incentive to attempt to keep away from writing insurance policies for individuals who most want medical insurance. Nobel Laureate Joseph Stiglitz was recognized for declaring that this choice recreation may need no viable resolution: the medical insurance market might collapse completely. (italics added)
I feel Arnold engaged right here in what Ronald Coase known as “blackboard economics.” The concept is to assume by the incentives that the varied gamers face and, on that foundation, make conclusions about the way in which the world is. It’s applicable that he cited Joe Stiglitz as a result of Stiglitz has been one of many masters of blackboard economics.
The issue is 2 fold. First, below this method, you’ll be able to typically be tempted to not assume by the incentives all the way in which. A transparent incentive is for the insurance coverage firm to not deny insurance coverage to a high-risk particular person within the particular person market however to underwrite insurance coverage. Meaning assessing threat and charging a premium that displays that threat.
Second, the blackboard method ignores the proof. In a weblog publish in 2010, I discussed some fascinating economics within the 2010 Economic Report of the President and the way in which the writer of the well being care chapter, whom I assume was the CEA’s well being economist Mark Duggan, now head of SIEPR at Stanford, twisted himself right into a pretzel to justify Obamacare. The entire post is value studying. Right here’s the actual half I wish to emphasize right here:
A Home committee investigation discovered that three giant insurers rescinded almost 20,000 insurance policies over a five-year interval, saving these corporations $300 million that might in any other case have been paid out as claims (Waxman and Barton 2009). (p. 188)
20,000 insurance policies over 5 years is 4,000 insurance policies per yr. So the typical variety of insurance policies rescinded by the three corporations individually was about 1,333. Is that a big quantity? Provided that the writer says these have been giant corporations, I don’t assume so. As one commenter on my publish famous on the time:
The 5 largest insurers nationwide every have between 10 and 40 million members, which is ~4-15M insurance policies. The following half-dozen or dozen are all million+.
The underside line is that it seems that only a few individuals who wished medical insurance and have been prepared to pay a premium that mirrored their threat went with out.
On his Substack, Arnold Kling, resident e-book reviewer at Econlib, wrote:
If folks pay for their very own medical insurance, the market is topic to choice video games. The people with probably the most incentive to purchase medical insurance are these that can value the insurance coverage firm probably the most in claims. (Though it seems that there’s a choice impact that goes within the different route. People who find themselves excessive in conscientiousness are extra seemingly each to acquire medical insurance and to take higher care of themselves.) Insurance coverage corporations, by the identical token, have an incentive to attempt to keep away from writing insurance policies for individuals who most want medical insurance. Nobel Laureate Joseph Stiglitz was recognized for declaring that this choice recreation may need no viable resolution: the medical insurance market might collapse completely. (italics added)
I feel Arnold engaged right here in what Ronald Coase known as “blackboard economics.” The concept is to assume by the incentives that the varied gamers face and, on that foundation, make conclusions about the way in which the world is. It’s applicable that he cited Joe Stiglitz as a result of Stiglitz has been one of many masters of blackboard economics.
The issue is 2 fold. First, below this method, you’ll be able to typically be tempted to not assume by the incentives all the way in which. A transparent incentive is for the insurance coverage firm to not deny insurance coverage to a high-risk particular person within the particular person market however to underwrite insurance coverage. Meaning assessing threat and charging a premium that displays that threat.
Second, the blackboard method ignores the proof. In a weblog publish in 2010, I discussed some fascinating economics within the 2010 Economic Report of the President and the way in which the writer of the well being care chapter, whom I assume was the CEA’s well being economist Mark Duggan, now head of SIEPR at Stanford, twisted himself right into a pretzel to justify Obamacare. The entire post is value studying. Right here’s the actual half I wish to emphasize right here:
A Home committee investigation discovered that three giant insurers rescinded almost 20,000 insurance policies over a five-year interval, saving these corporations $300 million that might in any other case have been paid out as claims (Waxman and Barton 2009). (p. 188)
20,000 insurance policies over 5 years is 4,000 insurance policies per yr. So the typical variety of insurance policies rescinded by the three corporations individually was about 1,333. Is that a big quantity? Provided that the writer says these have been giant corporations, I don’t assume so. As one commenter on my publish famous on the time:
The 5 largest insurers nationwide every have between 10 and 40 million members, which is ~4-15M insurance policies. The following half-dozen or dozen are all million+.
The underside line is that it seems that only a few individuals who wished medical insurance and have been prepared to pay a premium that mirrored their threat went with out.