Insurance matters

Felix Salmon links to a bunch of other analyses of how health insurance and a lot of other insurance has high counter-party risk, and thus leads to rescissions. Essentially, the insurance company looks for pre-existing conditions and see if you lied about that on your application. Thus at the moment that you actually do need an expensive service, it takes it all away and refuses to pay.

These matters of insurance do not strike me as rare, and while horrific, make some level of business sense. However, when looking too at the contracting process of insurance, no one can adjust terms of the contract to avoid this, unless that person is not a person, but rather a large entity like an employer that can spread out risk. Employer-based policies then help to reduce this risk. However, that means someone like me, with chronic conditions, must stay in employer sponsored health care.

This then only strengthens Ezra Klein's obsession with exchanges. That creates a new risk pool and a regulated market. Instead of creating a situation where the insurance company produces a standard form (and these rescissions do fall under adhesive form contracts that any first-year student can tell you about and clearly does not make sense because you expect health insurance to help cover these catastrophes), you create a market that does not allow companies to do this. However, to allow them to have a profit, you pool the risk nationally in this large market. The Massachusetts Connector, in fact, meets this criteria and this goal.

I think a move like this would give people more choice, and likely meet closer to what their intentions when entering into a health insurance contract. That is probably a good thing.