Tontines for the Young Invincibles: An Idea from Insurance History Behavioral Economics Could Be to Entice Low Risks into the Health Pool

By Baker, Tom; Siegelman, Peter | Regulation, Winter 2009 | Go to article overview

Tontines for the Young Invincibles: An Idea from Insurance History Behavioral Economics Could Be to Entice Low Risks into the Health Pool


Baker, Tom, Siegelman, Peter, Regulation


Over a third of all uninsured adults below retirement age in the United States are between 19 and 29 years old. When young adults, especially men, age out of the dependent care coverage provided by their parents' employment benefits or public health insurance, they often go without, even when buying insurance is mandatory and sometimes even when that insurance is a low-cost employment benefit. In health policy parlance, these people are known as the "young invincibles" and are considered unreachable by ordinary health insurance. As these young adults grow older, most of them eventually join the health insurance pool. But some of them face serious medical needs during the uninsured period, and their lack of insurance for those needs imposes costs on others in society, not to mention the consequences for themselves.

Policymakers have suggested a number of ways to get this group into the health insurance pool. One obvious approach would be a universal health insurance program. Alternatives include requiring employers to increase the maximum age of children who may be covered under their parents' health care benefits, raising the maximum age for participation in state-based public insurance programs, or mandating that individuals carry insurance. All of these are costly and/or involve an element of coercion.

Instead of forcing them to buy something they do not want or making others subsidize that purchase, what about offering the young invincibles a product they would be more willing to pay for? Insurance history and behavioral decision research suggest that insurance is just like other consumer products or services different people have different reasons for buying it (or not). Young adults in particular tend to feel "invincible," as if no serious harm could ever befall them. And of course, there is not much point in getting insurance that you believe you will not need, which in part explains why this group is reluctant to buy coverage. Whether or not their beliefs are rational, the invincibles are unlikely to be interested in insurance for classic prudential reasons. To reach them, we propose an idea that had great success in the 19th century life insurance market: tontines.

Tontine health insurance would pay a cash bonus to those who turn out to be right in their belief that they did not really "need" insurance after all. The simplest arrangement would award the bonus to those who did not consume more than a threshold value of medical care during a three-year period, potentially excluding preventive care. Tontine health insurance differs from ordinary health insurance or managed care in one main respect: Ordinary health insurance provides a tangible benefit only when you need health care. Tontine insurance pays a cash benefit when you don't use it, as well as covering your medical expenses when you do. As such, tontine insurance is structured to be maximally attractive to those who have an overly optimistic assessment of risk.

TONTINE INSURANCE

There are only a few current analogs to tontines--and nothing remotely like them in health insurance, as far as we know. But insurance products that pay off in both good and bad times were once incredibly successful in the life insurance market. They were so successful, in fact, that they fueled a massive inflow of funds into the coffers of life insurers, resulting in a major political backlash that shaped the overall architecture of the financial system in the early 20th century. That history is worth reviewing, because it reveals how attractive a bonus feature can be to those who are reluctant to purchase insurance.

Tontine life insurance emerged in the United States in the mid-19th century and became a resoundingly successful alternative to traditional life insurance. A tontine life insurance policy paid a deferred dividend to policyholders who timely paid their life insurance premiums for a specified period: 10, 15, or 20 years, depending on the policy that the applicant chose.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Tontines for the Young Invincibles: An Idea from Insurance History Behavioral Economics Could Be to Entice Low Risks into the Health Pool
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.