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« Greece Is the Word--But What About the Economic Forecast? | Main | Health Care Reform: Supply, Demand, Price Effects and Shortages »

March 22, 2010


What Healthcare?

"If I were advising an insurance company (I'm not, but give me a call if you run one), I'd err on the side of higher premiums rather than lower..."

One word...OUCH! I already pay over $300 a month for insurance through my work and that's after I dropped from a PPO to an HMO to save $300 (yes I would have had to pay $600 for health insurance).

So in other words all the bill did was to raise the possibility of me paying more money. And since I make 'too much' to be considered poor enough to get any assistance I'm going to have to shell out more of my money for the same service. So much for the middle class!

Lawrence Kramer

Why do insurance companies exclude pre-existing conditions? We economists call it "moral hazard." If people have a choice about whether they buy insurance or not, then those most likely to buy it are those who are sick or going to be sick.

Well, not exactly. Moral hazard refers to the tendency of insured people to behave carelessly. The term applies to pre-existing conditions only in the sense that the right to buy insurance after you get sick is tantamount to having free insurance right now. To the extent that that right causes people to take the risks that insured people take, moral hazard applies.

In contrast, the decision to buy insurance if you think you may become sick is called "adverse selection." That, too, is different from moral hazard, because moral hazard is a phenomenon related to how people who are effectively insured (either by a policy or the right to buy one) behave, whereas adverse selection describes how people who are eligible to buy insurance (but cannot buy it after they get sick, and so are not effectively covered unless they buy it) behave.

The decision not to buy insurance until you are sick is just called "gaming the system." Insurance companies cannot allow that game to be played, or they will go broke. They can price for moral hazard and adverse selection, but there is no way to price for freeloaders. That's why mandatory coverage is necessary if pre-existing conditions are to be covered: mandatory coverage eliminates pre-existing conditions by assuring that no conditions "pre-exist," except those incurred in childhood, a risk for which insurers, again, can price.

Ron Stone

Very nice analysis. I think the ripple effect of this "healthcare" bill will be enormous and it's cost for the government and business will be astronomical. Even without all the other out of control spending and power grabbing being done by the government, it could push this country into a serious depression. Another case of the government using a sledgehammer to kill a fly.

Mike Elman

"immediate access to insurance for uninsured individuals with a pre-existing condition"

Insurance companies are still going to be making TONS more money off of this bill.

Health Insurance Quotes

" The term applies to pre-existing conditions only in the sense that the right to buy insurance after you get sick is tantamount to having free insurance right now."

- Good point Lawrence. I was just thinking it's unfair if sick people couldn't buy insurance or get limited coverage. Nevertheless, I still hope they could, because they're the ones who really will use it.

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