Keeping Health Insurance Affordable
Published: April 25, 2018
Preventing insurers from pricing premiums based on risk unintentionally increases costs for everyone else in the marketplace. When healthy people refuse to purchase health insurance due to higher costs, it causes insurers to raise prices even further, further disrupting those who are left in the market. The solution is to provide higher-cost individuals with direct subsidies based on their financial needs, allowing healthy people to stay in the market, lowering overall prices, and providing opportunity for sick people to purchase healthcare at rates they can afford.
Discussion Questions
- Do we have a moral obligation to provide health insurance to everyone in America? What are the possible limits?
- How should the added cost to the government be financed?
Additional Resources
- Read "Healthy, Wealthy, and Wise: 5 Steps to a Better Healthy Care System” by John F. Cogan, R. Glenn Hubbard, and Daniel P. Kessler.
- Read "A Policy Too Far” by George P. Shultz, Scott W. Atlas, and John F. Cogan.
- Read John Cogan's book "The High Cost of Good Intentions: A History of U.S. Federal Entitlement Programs” to learn more about the federal program.
- Listen as John Cogan talks with EconTalk host Russ Roberts about Cogan's book, “The High Cost of Good Intentions,” available here.
Many people think health insurers shouldn't be able to charge higher premiums to people who are expected to cost more because of their health, age, or lifestyle factors.
These well-meaning restrictions prevent insurers from pricing premiums based on risk, which has the unintended consequence of increasing the cost to everyone else in the marketplace.
That might not be much of a problem if healthier people didn’t change their behavior in response. But when their premiums go up, many of them decide that insurance coverage isn’t worth it at that price and drop out of the market altogether – or drop out and wait until they get sick to purchase insurance again.
That makes the remaining pool of people that still buys insurance relatively sicker, which causes insurers to raise prices even further to cover their costs. Which in turn, drives even more healthy people from the market.
So what's the solution? Instead of regulating prices, the government could provide higher-cost individuals with direct subsidies based on financial need.
That way, healthy people would stay in the market, leading to lower prices overall, and sick people would be able to purchase health insurance at rates they could afford.