Hypothetical Mean

Commentary from an Actuarial and Economic Perspective

Mandatory versus Voluntary Insurance

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The WSJ reports that access to healthcare in Massachusetts may not necessarily follow from access to health insurance.

A private market with mandatory purchase is different than a private market with voluntary purchase.

When consumers and employers voluntarily purchase insurance, it is in the best interest of health insurance companies to make sure that their networks are sufficiently staffed to meet the healthcare demands of their policy-holders. Failure to do so will result in the subsequent loss of business, since purchasers are buying the insurance as a means to garner access to healthcare.

A mandatory purchase plan provides different incentives.  Some will purchase insurance to comply with the law rather than to obtain access to healthcare.   Insurance companies who offer insufficient networks and correspondingly low premiums will provide an attractive product to this market segment.  How is Massachusetts dealing with this?

For the record, I am not suggesting that this is causing the problems noted in the article.  I suspect that most current difficulties stem from the rather tumultuous state of affairs at the moment.  But because mandatory insurance markets are different than voluntary ones, I would expect problems like the one noted in the article, barring vigilent regulation.

 Matthew Yglesias, Tyler Cowen, Michael Cannon, and Arnold Kling all have different takes on the phenomenon.

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Written by Victor

August 1, 2007 at 3:47 am

Posted in Health Insurance

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