Home-Based Group Insurance

Today U.S. employees are not taxed for medical insurance obtained through their employer.  Imagine instead that medical insurance only got a tax break if it was obtained through neighborhoods, i.e., groups of contiguous neighbors banding together to deal with medical insurance plans. 

Disadvantages of this proposal include a substantial cost of change from current arrangements, higher costs of changing homes, and that neighborhood groups formed for this purpose would probably have less expertise than firms in dealing with insurance plans.  Plans would probably offer simpler contracts and wider reputations to compensate for reduced customer expertise.

Advantages of this proposal include keeping medical insurance when you lose your job, better job-employee matching because job change gets easier, better matching of plan features to more-likely-to-be-similar customer preferences, and that neighbor social pressure might be more effective than coworker pressure in encouraging healthy behavior. 

Problems with administrative overhead, adverse selection, or a lack of long term insurance wouldn't be obviously any better or worse under this proposal. 

OK, this doesn't seem a huge win, but it is an interesting alternate, to remind us that things do not have to be as they are.

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  • Arthur B.

    Am I missing something ? Why not have medical insurance tax deductible, period ?

  • frelkins

    A truly suburban idea. In NYC – like other large cities- we move all the time & despite what you see on Seinfeld, we don’t know our “neighbors” nor do we want to be in business with them. Please Robin remember that very few Americans live as you do.

  • Steve

    I don’t see how this is any different than scaling up? Why not based on your City or your State or your Country?

  • HH

    I’ve tossed around the idea of providing health insurance in a way that cable or telephone service is provided: a franchise contract with a community. It’s usually a monopoly in rural areas and more likely to be competitive in urban areas. It doesn’t eliminate the problem of uninsured people – some areas are likely to be virtually uninsurable, but it’s a start.

  • nawitus

    Healthcare is a human right, and ‘sosialistic’ healthcare has shown to be pretty damn cost effective. You don’t need to pay for CEO’s, you don’t need to pay for stock holders etc. Of course, most economists are brainwashed that “free market is always better than socialism”, so they won’t accept the fact that in some cases socialism is better than capitalism. These include the road system, police, fire stations, healthcare, education etc. Of course, private alternatives must be legal.

  • JAK

    Another disadvantage of Robin’s plan is that it would create, I think, an even larger beaurocracy than already exists. Hospitals have large, expensive beaurocracies to deal with the many different plans that exist.

    See, for example,
    http://www.prospect.org/cs/articles?article=the_doctors_revolt

  • http://macroethics.blogspot.com nazgulnarsil

    nawitus: espousing such a well known position adds nothing to the topic at hand, but thank you for making your biases clear.

  • josh

    I’m in.

  • josh

    I don’t know if you are supposed to mention political implications when the hypothetical in question is politically impossible to begin with, but in which kinds of discrimination would neighborhoods be allowed to participate?

  • http://profile.typepad.com/robinhanson Robin Hanson

    felkins, do urban folks change homes more often than jobs?

    JAK, I don’t understand what beauracracies you expect to increase.

    josh, I expect home-based group plan buyers to be discriminating about who they let in, whether legal or not.

  • JAK

    Robin,
    I might have misread your post. I thought that you were proposing that neighborhoods band together to insure themselves, in essence forming their own insurance companies.

  • http://www.marinamartin.com Marina Martin

    There are already local associations that allow members to join their group health insurance plans, like the Chamber of Commerce. I believe in New York City there is a Freelancer Association that provides the same thing, to freelancers living within the city.

    I will continue purchasing insurance directly from Blue Cross for myself, as I am the person most capable of choosing the right plan for me. I understand the history of how health insurance got tied up with paychecks, but I see it as an absurd practice.

  • Unnamed

    This would be a drastic change to a system that (AFAIK) has never been tried and which is not obviously better than the status quo. One problem: depending on the rules, either people who got sick would move to get better coverage, or they would find it very difficult to move.

  • http://entitledtoanopinion.wordpress.com TGGP

    Nawitus, do you think capitalism would do a poor job of providing roads, police & fire protection based strictly on reasonable assumptions or do you think the times it has been tried it turned out poorly?

  • Another Josh

    Robin, you dismissed adverse selection out of hand. I see this as the overarching weakness to this system. I am incapable of reconciling your statements:

    “Problems with . . . adverse selection . . . wouldn’t be obviously any better or worse under this proposal.” & “I expect home-based group plan buyers to be discriminating about who they let in, whether legal or not.”

    If buyers are actively discriminating, neighborhoods will sort along wellness/sickness lines. I think they already do to an extent that would doom this system even if discrimination was effectively prohibited. Discrimination would only put the spurs to it.

    You probably have a novel idea that I haven’t considered that may explain away this problem. I am eager to hear back from you.

  • http://profile.typepad.com/robinhanson Robin Hanson

    Unnamed, people who are sick now find it hard to change jobs; being stuck to a home seems less of a problem than being stuck to a job.

    Another, having group insurance customers be sorted does not at all imply adverse selection. Adverse selection requires the insured party to know more about its risk level than the insurance company, and that it choose to buy more insurance as a result.

  • Dan

    This being Robin, I will assume that membership is completely voluntary… the groups is just going to exclude “high-risk” individuals by default. Not to mention poor neighborhoods will have pathetic systems if at all, the idea behind insurance is that the healthy pay for the unhealthy and the rich subsidize the poor(even in private plans). I don’t think a mild label as “biased” can be attached to Robin when it comes to financing health care, more like active rationalization and furious spinning… To be honest the idea is stupid… this is like saying we should replace the finance system with bartering because it is unregulated banks or no banks… What next, everybody should have vegetable patches and goats in their back yards?

  • http://blog.greenideas.com botogol

    steve has this right – why neighbourhoods? why not Cities, or States?

    Or countries? the problem with socialised medicine is that in countries where it happened the state (for perfectly understandable and valid reasons) most often became the *provider* rather than the procurer of medical care.

    If the NHS was invented in C21 it would undoubtedly be more like a compulsory insurance scheme, with competing private providers… as indeed it is slowly becoming.

  • Dan

    botogol,

    Yes steve has it right. Robin’s idea is the vegetable patch and goats in the backyard for healthcare…
    The reason is because of his well known bias. A country system would be centralized and “socialism”. So he tries to decentralize and marketize it and at the other side a silly idea emerges.

  • TGGP

    Dan, insurance based on neighborhood is no more decentralized/marketized than based on employer. Robin’s idea is an example of pulling the rope sideways.

  • Grant

    Perhaps I’m missing something, but I believe Robin is trying to show the silliness of the status-quo (in America its employer-provided health care) by providing another, almost silly and random, mechanism that may work just as well. I don’t think he’s trying to defend neighborhood-based health insurance or employer-provided insurance.

    Like many other policies, employer-provided care was the result of political action, but not of political design. I believe it emerged out of wage controls during WW2, and was politically impossible to remove. Defending it may be an example of status-quo bias.

  • http://profile.typepad.com/robinhanson Robin Hanson

    Grant, yes, I’m not so much arguing for it as playing with the idea.

    TGGP, yes, though usually one would think of moving away from corporations to local communities would be thought of as more progressive. All the more ironic that I’m accused of a free market bias here.

    Dan you don’t understand the idea behind insurance.

  • http://www.michaelhoney.com Michael Honey

    Coming from Australia, I just don’t see why a national health coverage system is considered ‘socialist”: it’s just a pragmatic response to a universal need. We have private health insurance as well (the government encourages it through subsidies and tax breaks) but a universal system of health care, based on citizenship not employment status is, to most of the civilised world, one of the things that a society should just do.

  • jimmy

    “people who are sick now find it hard to change jobs”

    Why can’t the current employer pay the new employer to get the sick person off their hands?