Thursday, December 20, 2012

Banning Insurance Companies And Employers From Considering Health Status Leads To Unhealthier Lifestyles: Lowers Incentives To Lead Healthier Lives

Posted by Milton Recht:

From "Analyzing the Effects of Insuring Health Risks: On the Trade-Off between Short Run Insurance Benefits vs. Long Run Incentive Costs" by Harold L. Cole, University of Pennsylvania, Soojin Kim, University of Pennsylvania and Dirk Krueger, University of Pennsylvania, November 2012, NBER Working Paper No. w18572:
This paper constructs a dynamic model of health insurance to evaluate the short- and long run effects of policies that prevent firms from conditioning wages on health conditions of their workers, and that prevent health insurance companies from charging individuals with adverse health conditions higher insurance premia. Our study is motivated by recent US legislation that has tightened regulations on wage discrimination against workers with poorer health status (Americans with Disability Act of 2009, ADA, and ADA Amendments Act of 2008, ADAAA) and that will prohibit health insurance companies from charging different premiums for workers of different health status starting in 2014 (Patient Protection and Affordable Care Act, PPACA). is suboptimal to introduce both policies jointly since such policy innovation induces a more rapid deterioration of the cohort health distribution over time. This is due to the fact that combination of both laws severely undermines the incentives to lead healthier lives. The resulting negative effects on health outcomes in society more than offset the static gains from better consumption insurance so that expected discounted lifetime utility is lower under both policies, relative to only implementing wage nondiscrimination legislation.

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