On his Substack, Arnold Kling, resident e book reviewer at Econlib, wrote:
If folks pay for their very own medical health insurance, the market is topic to choice video games. The people with probably the most incentive to purchase medical health insurance are these that can price the insurance coverage firm probably the most in claims. (Though it seems that there’s a choice impact that goes within the different path. People who find themselves excessive in conscientiousness are extra possible each to acquire medical health insurance and to take higher care of themselves.) Insurance coverage firms, by the identical token, have an incentive to attempt to keep away from writing insurance policies for individuals who most want medical health insurance. Nobel Laureate Joseph Stiglitz was identified for stating that this choice recreation may need no viable resolution: the medical health insurance market may collapse totally. (italics added)
I believe Arnold engaged right here in what Ronald Coase known as “blackboard economics.” The concept is to assume by way of the incentives that the varied gamers face and, on that foundation, make conclusions about the best way the world is. It’s acceptable 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, underneath this method, you possibly can typically be tempted to not assume by way of the incentives all the best way. A transparent incentive is for the insurance coverage firm to not deny insurance coverage to a high-risk individual within the particular person market however to underwrite insurance coverage. Meaning assessing danger and charging a premium that displays that danger.
Second, the blackboard method ignores the proof. In a weblog publish in 2010, I mentioned some attention-grabbing economics within the 2010 Financial Report of the President and the best way the creator 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 publish is value studying. Right here’s the actual half I need to emphasize right here:
A Home committee investigation discovered that three massive insurers rescinded practically 20,000 insurance policies over a five-year interval, saving these firms $300 million that may in any other case have been paid out as claims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 common variety of insurance policies rescinded by the three firms individually was about 1,333. Is that a big quantity? Provided that the creator says these had been massive firms, 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 needed medical health insurance and had been prepared to pay a premium that mirrored their danger went with out.
