Combining life insurance and health insurance

Why not internalize the relevant externalities by bringing the two together?:

We estimate the benefit of life-extending medical treatments to life insurance companies. Our main insight is that life insurance companies have a direct benefit from such treatments because they lower the insurer’s liabilities by pushing the death benefit further into the future and raising future premium income. We apply this insight to immunotherapy, treatments associated with durable gains in survival rates for a growing number of cancer patients. We estimate that the life insurance sector’s aggregate benefit from FDA-approved immunotherapies is $9.8 billion a year. Such life-extending treatments are often prohibitively expensive for patients and governments alike. Exploiting this value creation, we explore various ways life insurers could improve stress-free access to treatment. We discuss potential barriers to integration and the long-run implications for the industrial organization of life and health insurance markets, as well as the broader implications for medical innovation and long-term care insurance markets.

That is from a recent article by Ralph S J Koijen and Stijn Van Nieuwerburgh in the May 2020 QJE.  Here are ungated versions of the same paper.  And here is Robin’s related idea from 1994.


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