How can consumers avoid premium risk, which leads to increased premiums when health deteriorates? Mathias Kifmann explores solutions to this challenge in private health insurance markets. He analyzes three main approaches to insuring premium risk while maintaining competition among insurers. Guaranteed renewable contracts lock in premiums regardless of health changes, requiring a lifetime commitment to an insurer. Premium insurance compensates for premium increases linked to health status changes. Community rating mandates uniform premiums across all insured, eliminating risk-based pricing. Kifmann highlights the complications introduced by managed care, suggesting it can worsen the lock-in issue seen with guaranteed renewable contracts. He proposes an alternative contract that incentivizes insurers to prioritize consumer interests by outlining payments for switching providers. Additionally, he examines whether community-rated insurers should offer managed care alongside traditional options. While managed care can serve as a risk-selection tool under community rating, it can also yield benefits for all stakeholders. Achieving these welfare gains may require taxing certain insurance plans while subsidizing others.
