Health Status Insurance
VII. Key Issues: Regulation & Reform >> C. Health Reform >> Voluntary Health Reform >> Health Status Insurance (last updated 6.9.16)
Topic Outline
Overview
This proposal by John Cochrane, Myron S. Scholes Professor of Finance at the University of Chicago Booth School of Business, is designed to provide life-long, portable health security, while enhancing consumer choice and competition. Health-status insurance covers the risk that your medical insurance premiums will rise. If you get a long-term condition that moves you into a more expensive medical insurance premium category, health-status insurance pays you a lump sum large enough to cover your higher medical insurance premiums, with no change in out-of-pocket expenses.
Insurers would be permitted to risk-rate all health insurance premiums. Premiums would consist of a component for expected medical expenses plus a component for health-status insurance. Medical insurance covers medical expenses in the current year, minus deductibles and copayments. Health-status insurance covers the risk that an individual’s medical insurance premiums will rise. Consumers could change insurers at any time. If they have developed a chronic (high cost) condition, they would be entitled to a lump sum payment representing the net present value of the higher costs expected as a consequence of developing that condition.
Lump-sum payments from health-status insurers would go into a special “health-status insurance account” that can only be used to pay medical insurance premiums or medical expenses. This would minimize incentives for fraud or misspending amounts intended to cover lifetime medical expenses.
Theory
- John H. Cochrane. Health-Status Insurance: How Markets Can Provide Health Security. Cato Institute, Policy Analysis 633, February 18, 2009.
- John H. Cochrane, Time-Consistent Health Insurance, Journal of Political Economy 103 (June 1995): 445–73.
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Bradley Herring and Mark V. Pauly, Incentive Compatible Guaranteed-Renewable Health Insurance Premiums, Journal of Health Economics 25
(2005): 395–417.
Practice
- Non-group Market. Three quarters of non-group policies were guaranteed-renewable even before this was required by HIPAA in 1996.
- UnitedHealth Continuity. Those who pass a medical review can pay 20 percent each month of the current premium on an individual policy to reserve the right to be insured under the plan at some point in the future.
- States. No states have yet adopted the health-status insurance model.