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Time-Consistent Health Insurance

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  • Cochrane, John H

Abstract

Currently available health insurance contracts often fail to insure long-term illnesses: sick people can suffer large increases in premiums or denial of coverage. The author describes insurance contracts that solve this problem. Their key feature is a severance payment. A person who is diagnosed with a long-term illness and whose premiums are increased receives a lump sum equal to the increased present value of premiums. This lump sum allows him or her to pay the higher premiums required by any insurer. People are not tied to a particular insurer and they can pay the same premium as in standard contracts. Copyright 1995 by University of Chicago Press.

Suggested Citation

  • Cochrane, John H, 1995. "Time-Consistent Health Insurance," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 445-473, June.
    • Handle: RePEc:ucp:jpolec:v:103:y:1995:i:3:p:445-73
    DOI: 10.1086/261991
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    References listed on IDEAS

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    1. Fudenberg, Drew & Holmstrom, Bengt & Milgrom, Paul, 1990. "Short-term contracts and long-term agency relationships," Journal of Economic Theory, Elsevier, vol. 51(1), pages 1-31, June.
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    4. Feenberg, Daniel & Skinner, Jonathan, 1994. "The Risk and Duration of Catastrophic Health Care Expenditures," The Review of Economics and Statistics, MIT Press, vol. 76(4), pages 633-647, November.
    5. Henry J. Aaron, 1994. "Issues Every Plan to Reform Health Care Financing Must Confront," Journal of Economic Perspectives, American Economic Association, vol. 8(3), pages 31-43, Summer.
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