Medicare’s Looming Risk Transfer

Jaan Sidorov

First posted 8/24/11 on the Health Affairs Blog

Copyright ©2011 Health Affairs by Project HOPE – The People-to-People Health Foundation, Inc. 

Suppose, despite my good health and lifelong habit of avoiding doctors, I wanted to give you $1000 today in exchange for your agreement to cover the future cost for all my unplanned medical expenses in the next year?  Your decision would be an exercise in classic “risk transfer,” in which parties simultaneously monetize ($1000) and transfer (agree to assume) risk. It’s also a gamble. I’m betting that the likelihood of an expensive illness, while low, could exceed $1000, while you are betting that my good health will continue and that you’ll get to keep most of that $1000.