Health Insurance without an Expiration Date

Hangsheng Liu and Soeren Mattke have written a useful short article at Health Affairs, promoting “health insurance without an expiration date,” criticizing the one-year term of most U.S. health insurance, which features open enrollment at the end of each calendar year:

Moreover, when consumers know they can change plans if their health worsens, they lose at least one incentive to adopt healthy lifestyles. Insurers, too, have few incentives to invest in their enrollees’ health through wellness and disease management programs because those investments, studies show, may not pay off for up to three years. By then, enrollees may have moved on to another insurer. Thus, a greater role for exchange plans and price competition might inadvertently counteract current efforts to shift the payment system toward one that rewards providers for providing long-term health care management for their patients.

They explain that in Germany and Australia incentives for longer-term policies exist. In the U.S., large, self-insured group benefits approximate such policies (presumably because most employees stay with large firms for many years. This counters the charge, which we’ve discussed at this blog, that corporate wellness programs are more about risk selection than true wellness.)

One major problem with this approach, not discussed by Liu and Mattke, is how a beneficiary switches if he decides he prefers another health plan. The solution we’ve discussed is health-status insurance, or “insurance against becoming uninsurable.”


Comments (14)

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  1. Don Levit says:

    To learn more about long term
    Coverage for self funded employers go to national
    When the significant projected savings occur each year why would an employer switch coverage?
    Don Levit,CLU,ChFC

  2. Bart I. says:

    Mortages and government bonds are priced differently depending on the term. I don’t see a reason not to have the same choice regarding health insurance.

    But it’s not clear whether longer-term contracts would cost more or less than one-year premiums.

    • John R. Graham says:

      More, because you are buying a strip of put options.

      • civisisus says:

        That would be true if your bond’s characteristics were static – but part of the assumption is that longer-term health coverage works longer term health magic. A dynamic person is not a fixed debt obligation.

        The price of the described extended policy may not/need not be less – it’s just that your default assumption that the price would be more is incorrect.

        Just further evidence, John, that you simply don’t know enough about health care to comment on it usefully. And rigid ideological conviction does not help you here.

        So give up.

        • John R. Graham says:

          A strip of puts refers to a portfolio of options on a portfolio of bonds, not one bond.

          NCPA will not publish further comments from you on this blog unless they are courteous and to the point.

          Even if you had the integrity to identify yourself, we will not publish any more comments like the last two you have posted.

  3. Reeves says:

    Because people can readily switch health care plans if their health worsens, one would think health insurance companies would add benefits to longer plans to entice customers to choose them

    • Don Levit says:

      You are assuming insurers want clientele for the long run.
      As far as the public exchanges go, many “savvy” advisors are urging people to look at the plans each year.
      In most cases, it would be beneficial to switch.
      How can insurers have sustainable pricing in such an environment?
      Don Levit

      • John R. Graham says:

        Absolutely. The type of insurance I describe cannot exist when there is open enrollment annually.

  4. Bob Hertz says:

    It is of interest that car insurance companies want their customers to be loyal, whereas life insurance companies do not mind lapses. Right now the few remaining long-term care insurers are desperately hoping that more customers cancel their policies. (see recent articles in the financial press on Genworth.)

    This is all happening in the free market. It would suggest that some areas of health are not really insurable.

    As an aside, many of the large self-funded plans have very high costs. The German
    level-premium plans are also more costly than most Americans could afford.

    • John R. Graham says:

      Thank you. Many areas of health care are not insurable! Getting old is not insurable! Maternity after pregnancy is not insurable!

  5. Linda Gorman says:

    Before Obamacare, individual policies in my state were guaranteed renewable as long as premiums were paid and there was no fraud. This is pretty much the same as a long-term policy although there is no price guarantee.

    As for doing something about my health, I doubt that my health insurer is going to help much except perhaps for letting me know about substandard hospitals and known centers of lousy care.

    Maybe people need to be reminded that employer group health plans would not be the norm had the US government not made the mistake of giving them preferential tax treatment?

    • John R. Graham says:

      Thank you. The individual market worked much better than is generally believed. Mark Pauly and colleagues have researched this quite thoroughly. Although, there were ways for insurers to behave in bad faith.

  6. Bob Hertz says:

    As a longtime insurance company employee, I will offer the observation that guaranteed renewable is not very much comfort to insurance buyers. This provision is absolutely no protection against actuarial death spirals, or carriers leaving the market when it is not profitable for them.

    In libertarian theory, we do best when all transactions are voluntary exchanges.
    And I do not contest this in general.

    But in the insurance field, a pure free market creates many problems. Car insurance and home insurance are fairly stable, but car insurance has legal mandates, and mortgage lenders require home insurancec (which is effectively a mandate.)

    In the lat 1970’s, Claude Pepper proposed adding long-term care benefits to Medicare. The executives of private industry went down to Washington and stated that free market insurance could handle the problem.

    Well, here we are 30+ years later, and free market LTC coverage has been always been skimpy and will probably disappear in 10 years.

    In the vast majority of American states, the individual health market before 2010 had huge problems. (not that the ACA has made them much better!) In a free market, low risk people will choose not to buy insurance, and high risk people are either denied a policy or cannot afford what they are offered.

    I just feel that this is one area of economic life where free markets are not sufficient.

    • John R. Graham says:

      Thank you. I agree completely with your first paragraph, which is why I endorse health-status insurance, or “insurance against becoming uninsureable”. Now, there may be a halfway house. In Australia, when the government allowed hospital insurers to increase premiums for people who did not sign up immediately when they turned 30, people signed up younger than they had when there was no penalty.

      The same prevails in Medicare. I’d bet if there were no penalty for delaying signing up for Medicare, a few people might delay a year or two.