Congressional Health Care Briefing Book |
Creating A Workable Market for Health Insurance
"The market for health insurance could work at least as well as the market for life insurance." |
If health insurance were personal and portable, people could continue coverage no matter how frequently they switched jobs. With Medical Savings Accounts, they would have funds to continue premium payments even when they were out of work. If health insurance were guaranteed renewable, people would not fear cancellation of their policy or premium increases just because they got sick. If risk pools were available, they would be able to purchase insurance even in the unlikely event that they became uninsurable. And if a fair system of tax credits were enacted, they could obtain insurance at an affordable price, given their income.
These reforms solve the most serious problems in the markets for individual and small group insurance. With them, people could enjoy all of the advantages of a competitive insurance market. Individuals entering the market would face actuarially fair prices, and when entering a new insurance pool, each would pay a premium reflecting the expected costs that person brings to the pool. Because risk would tend to be priced fairly accurately in such a market, people would be able to make rational decisions about how much risk to transfer (through third-party insurance) and how much to retain (self-insuring through Medical Savings Accounts).
In this way, the market for health insurance could be made to work at least as well as the market for life insurance -- perhaps even better.
Source: This section was adapted from John C. Goodman and Gerald L. Musgrave, Patient Power: Solving America's Health Care Crisis (Washington, DC: Cato Institute, 1992). Patient Power may be ordered directly from the National Center for Policy Analysis. |