A 19th Century Idea for Health Reform
Today’s idea: To get healthy young Americans into the insurance pool, pay them bonuses if it turns out they’re correct in their belief that they won’t get sick, say two academics.
Health | Floundering health-care reform plans in need of new ideas? Writing in Regulation magazine, Tom Baker and Peter Siegelman offer an old and nearly forgotten one.
They suggest copying the wildly popular “tontine” life-insurance policies of the mid-1800’s, which paid a bonus if the insured happened to outlive the policy’s term. The writers think that applying the same concept to health coverage would, consistent with behavioral economics, entice the all-important, uninsured “young invincibles” into the insurance pool and reduce costs for everyone:
True, the authors note, tontines (named after an Italian banker) were outlawed in life insurance in 1905, after a political scandal stemming from all the cash they generated. Thus tontines were victims of their own success, the authors say, but there was nothing intrinsically wrong with them as insurance products. [Regulation]
The simplest arrangement would award the bonus to those who did not consume more than a threshold value of medical care during a three-year period, potentially excluding preventive care. … Ordinary health insurance provides a tangible benefit only when you need health care. Tontine insurance pays a cash benefit when you don’t use it, as well as covering your medical expenses when you do. As such, tontine insurance is structured to be maximally attractive to those who have an overly optimistic assessment of risk.