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Insurance markets in everything
If only. But now we have insurance in insurance:
For these economically uncertain times, the UnitedHealth Group has a “first of its kind” product: the right to buy an individual health policy at some point in the future even if you become sick.
Called UnitedHealth Continuity, the product is not actual medical insurance, but is aimed at people who may have insurance now but are worried they may lose it — and may not be able to obtain replacement insurance on their own. They may expect to retire early, for example, before they qualify for Medicare. Or they are worried about the possibility of losing their job and their health coverage.
People who are already sick will generally not be eligible for the new product. Those who do pass a medical review, will 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.
There is also a politics angle: by buying such a policy you are betting against comprehensive health insurance reform under Obama. Here is a previous MR post on a related market. Here is a post on why private health insurance doesn't work better than it does. And don't forget Alex's book on Entrepreneurial Economics, which promoted a version of this idea some time ago.
For the pointer I thank both Michael Buckley and Davis King.
Posted by Tyler Cowen on December 3, 2008 at 10:02 AM in Economics | Permalink
Comments
Who would buy this insurance, but with advance knowledge of their needing it? Esp if you were planning early retirement, some time off from work, etc, what's to stop you from waiting till the last minute?
Given that they probably gather information on subscribers current employ, would it be insider trading for United Healthcare to invest based on subscription rates to this service?
Posted by: adverse selection at Dec 3, 2008 10:24:05 AM
Sorry Tyler, this isn't that novel. Life insurers
routinely provide a "guaranteed insurability rider"
to purchasers of life insurance-that allow insureds
to purchase additional insurance in the future
without regard to insurability. Its essentially
a put option. This product is unique only
in that it applies to morbidity rather than mortality
risks (health vs. life) and the fact that its
apparently being offered as a separate policy.
Posted by: Superheater at Dec 3, 2008 10:34:35 AM
Adverse selection: I'd buy it if it were cheaper, and I'm a pretty healthy guy.
I'm a consultant. But I have a couple of clients that pay me with health insurance. I.e., rather than paying me $100k up front, they put me on payroll for $90k total comp, which gets me health coverage. Sweet deal for both of us, but I'd like to insure against the possibility that I can't get this in the future.
This plan is a little pricey, however. I'd rather have a plan that only kicks in when COBRA runs out, which should probably be cheaper (it's really insurance against me not being on someone's payroll for more than 18 months, i.e. unlikely).
Posted by: Ninja Zombie at Dec 3, 2008 10:51:04 AM
Of course it also assumes that there are no solvency issues for United Health.
Posted by: Warning at Dec 3, 2008 11:07:33 AM
Aha, Warning, you're right! Which is why we need a different company to insure against the possibility that United Health will become insolvent.
Posted by: turtles at Dec 3, 2008 11:14:56 AM
So, buy the insurance insurance, ultra-short UnitedHealth, and buy calls at a high strike price?
Just thinking out loud here.
Posted by: Andrew at Dec 3, 2008 11:47:22 AM
There is also a politics angle: by buying such a policy you are betting against comprehensive health insurance reform under Obama.
Yes, and this is a mechanism I've proposed, through which government could be made mostly irrelevant. Think about it: If prediction markets get expansive enough, then you will be able to effectively insure against any future change in the law.
For example, let's say your skill set is heavily dependent on the Department of Defense being heavily funded. So, you bet that the DoD's funding will be cut, and if that happens, you get a huge payout, thereby smoothing out your risk of loss of income.
Alternatively, let's say you like a certain kind of baby seat (or birth control method). You could bet that it will bet banned, and if it is, you get enough of a payout to compensate you for your anguish at no longer having access to it.
Think about the long-term implications: once every proposed legislation does nothing but make everyone buy a smoothing insurance policy, Congress will see that their policies are Pareto-suboptimal compared to just hitting everyone with a one-time fee, and since they'd never propose the latter, they're forced to accept how harmful they are.
"Wow, all I can ever do for Americans is make them lose money to a new insurance policy."
Posted by: Silas Barta at Dec 3, 2008 11:51:21 AM
"Who would buy this insurance, but with advance knowledge of their needing it? Esp if you were planning early retirement..."
I think you missed the point...the "bad" outcome of the insurance company is not you buying insurance, it's you getting sick AND buying insurance. If you are not sick, they are happy to sell you insurance, whether tomorrow or in ten years. Even if you are planning to retire tomorrow, you probably aren't planning on getting sick, too. That's why they only let currently healthy people sign up.
Posted by: ed at Dec 3, 2008 1:54:00 PM
High-deductible major medical individual insurance plans can sometimes be as cheap as 20% the cost of more comprehensive coverage. These plans won't pay for every little doctor's visit or prescription -- they kick in after several thousand in medical expenses, then pay 100% -- but at least you're protected against being bankrupted by catastrophic illness or injury.
Posted by: Jacqueline at Dec 3, 2008 4:34:13 PM
Esp if you were planning early retirement, some time off from work, etc, what's to stop you from waiting till the last minute?
Because you might not be healthy then. If you're 30 and plan to retire at 50, it can make sense to lock in your ability to get coverage when you do retire, even if you develop an expensive condition in the next 20 years.
Of course, this is yet another illustration of why having employers buy our health insurance is stupid; if we bought it individually there would be no need for meta-insurance like this.
Posted by: Brian at Dec 3, 2008 4:35:33 PM
Just heard this on NPR and thought I would email you - obviously I'm late to the parade!
http://www.npr.org/templates/story/story.php?storyId=97766024
Posted by: Robert Bell at Dec 3, 2008 5:47:36 PM
great article. Shame about the policy though. Spot on about the fact they'll only be too glad to take your money while your fit and healthy.
http://autoinsurancecity.blogspot.com (latest auto insurance news, updated 24/7)
Posted by: aic at Dec 4, 2008 8:00:03 AM
Given that they probably gather information on subscribers current employ, would it be insider trading for United Healthcare to invest based on subscription rates to this service?
A student's analysis: United Healthcare likely has a fiduciary (or fiduciary like) duty to keep the insured's information private. Trading on that infomration would be a breach of the duty of non disclosure. Such breach in connection with a securities transaction would be enough to trigger a violation. Alternatively, you might argue that United Healthcare is misappropriating the insured's private infomration by trading on subscriber data, which would also be a securities violation.
Posted by: Rob at Dec 4, 2008 1:17:08 PM
Other Andrew--
You're on the right track! Just add a few out of work financial engineers to really develop that market. They could end up buying something based on the UHC's insurance insurance's risk from a non-insurance company (like AIG ;): synthetic insurance insurance. It's a little awkward, so let's call it synthetic Continuity Doctor Opportunity or synthetic CDO for short.
Anyone have anything against CDOs?
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