Insurance markets in everything

by on December 3, 2008 at 10:02 am in Economics | Permalink

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.

adverse selection December 3, 2008 at 10:24 am

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?

Ninja Zombie December 3, 2008 at 10:51 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).

turtles December 3, 2008 at 11:14 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.

Silas Barta December 3, 2008 at 11:51 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.”

Jacqueline December 3, 2008 at 4:34 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.

Robert Bell December 3, 2008 at 5:47 pm

Just heard this on NPR and thought I would email you – obviously I’m late to the parade!

Rob December 4, 2008 at 1:17 pm

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.

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mike May 13, 2009 at 11:21 pm

It seems we will be in economy ression for quite a long time. We can see the economy crisis effect everywhere.

ArchieOtto August 27, 2010 at 11:53 am

Sadly, health insurance is not like an auto insurance quote that you can renew whenever it expires. If you become ill, it’s a lot harder to get health insurance, that’s why this product is great. It gives people comfort knowing that they will be able to stay insured even when they are sick.

JennyT October 13, 2010 at 2:39 pm

So you are telling me that now people can buy health insurance in case they might loose their actual health insurance. Is that normal in your opinion? Insurance for insurance for insurance:))) That is funny, I have to tell you, but also very traumatic if you would ask me. There is really a need for a health care reform. home insurance ireland

RianVinny December 30, 2010 at 6:43 pm

I read this article and I didn’t agree with the insurance companies’ new initiative. We like to believe that the future is somewhat secure, but why should a healthy employee make another insurance? The situations when he could benefit from it would be too rare. Farmers Insurance

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