Comments on: Safety in Numbers http://www.plain-sense.com/2009/05/12/safety-in-numbers/ For students and friends of economics Fri, 03 Feb 2012 01:36:33 -0800 http://wordpress.org/?v=2.8 hourly 1 By: Paul Jenkins http://www.plain-sense.com/2009/05/12/safety-in-numbers/comment-page-1/#comment-863 Paul Jenkins Thu, 28 May 2009 06:10:10 +0000 http://www.plain-sense.com/?p=107#comment-863 I think that there are major benefits to risk pooling, but there still needs to be some mechanism in place to diversify the market to allow for targeting of services to individuals and min/maxing (as it were) with regard to expenditures/benefits. To take your analogy further (or simply reinforce) distributed risk means distributed costs, as well. Individuals with expensive health care needs influence those without such issues, while the two groups pay similar amounts - much in the same way all those bankruptcies are damaging the valuation of the entire risk pool in mortgages. If there were a health crisis (such as the obesity epidemic) that shifted the costs dramatically, the system would need time to respond and reassess the risk pool/adjust rates... That (obviously) has a big potential downside. Just some thoughts. I look forward to discussing this further in class. :) I think that there are major benefits to risk pooling, but there still needs to be some mechanism in place to diversify the market to allow for targeting of services to individuals and min/maxing (as it were) with regard to expenditures/benefits.

To take your analogy further (or simply reinforce) distributed risk means distributed costs, as well. Individuals with expensive health care needs influence those without such issues, while the two groups pay similar amounts – much in the same way all those bankruptcies are damaging the valuation of the entire risk pool in mortgages. If there were a health crisis (such as the obesity epidemic) that shifted the costs dramatically, the system would need time to respond and reassess the risk pool/adjust rates… That (obviously) has a big potential downside.

Just some thoughts. I look forward to discussing this further in class. :)

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