Thursday, June 12, 2003 :::
The President was in town yesterday to talk about health care, so let's use this as an excuse to offer my idea for life-long health insurance. One of the problems with insurance is that using it makes you a higher risk to need it again; you'd like to be able to insure against the risk that you'll have higher premiums. Of course, completely eliminating the risk of higher premiums raises moral hazard problems to a much greater extent than if you're not forced to renew. What is actually covered in a health plan will be somewhat ambiguous, especially if we try to write a long-term plan that will be overtaken by technology, and disputes leave both sides frustrated and cost a lot of money.So here's what I do: Aetna and I go to Met Life and buy an annuity on my life with Aetna as the beneficiary, receiving a large payment (say $10,000) each month for the rest of my life. Aetna will be willing to pay most of the cost of this, but I'll probably have to chip in, say, $50,000 or more. Here on out, Aetna pays for whatever it wants; they can subsidize prescriptions, specific doctors, certain kinds of food, exercise equipment, meditation classes — whatever they think will increase their payoff by more than it costs. They structure incentives to minimize moral hazard; there are no disputes over coverage because what I've created is results-based, rather than specifying means to get there; I, meanwhile, never have to worry about ending up paying $2000 for medication I can't afford.
The most obvious problem, in my opinion, is that long life is not the only goal of health care; if my health deteriorates for some reason or another I may want take the chance of an experimental procedure that may improve the quality of my life but may kill me; this would clearly not be in Aetna's interest as this is structured here. The other most serious problem, in my mind, is that this creates a bilateral monopoly; Aetna may figure that I'll buy prescriptions out of pocket if they don't cover it, so they might as well save their money. Likewise, I may want to demonstrate a greater cavalierness than is optimal, in order to make Aetna think it has to pay those costs. Bigger catastrophes are not covered; if I'm going to be costing $20,000 a month to keep alive for the rest of my life, Aetna's not interested, and while there are reasons for thinking that's a feature, not a bug, it would certainly upset some people. [They may purchase catastrophic insurance on top of this, though, or negotiate a larger annuity or the like.] Those people and more will be put off by the no-recourse feature; Aetna may assess the benefit of something differently from how I do. These latter considerations create considerable legislation risk — in spite of the clarity of the agreement, the idea that Congress would require, after the fact, certain coverage from such health care plans, and that certain courts would enforce it, does not seem to me far-fetched, and the need for the companies to protect themselves from that risk is going to raise the cost of initiating such a plan.
If anyone has refinements (or other reflections) to offer, they're more than welcome.
::: posted by dWj at 11:32 AM
