Book Club: Risky Business—Why Insurance Markets Fail And What to Do About It

I thought I knew a lot about how insurance markets work (and don’t), but I learned more than I expected from Risky Business—Why Insurance Markets Fail And What to Do About It by Liran Einav, Amy Finkelstein, and Ray Fishman. Adverse selection (commonly called cherry picking) is a double-edged problem. I knew about insurers’ schemes to avoid expensive customers (free gym memberships, offices on fifth floor walk ups). But I didn’t appreciate how much info we have about our own health that insurers don’t have. Both tendencies skew insurance markets, creating a big Whack-a-Mole game. I also learned that insurers sometimes don’t use data that they could, to select lucrative consumers or charge higher prices. And I also learned why sometimes the best way to help people with high medical costs afford coverage is to subsidize healthier people. (The authors give you the option to skip the explanation, but you shouldn’t.) I also hadn’t appreciated how government interventions to both make the market more fair but also keep prices down, can conflict with each other. Not that we should feel badly for insurers, but a failed market in a death spiral doesn’t benefit anyone.

The book has a slightly different take than Connecticut did on why repealing ACA mandates didn’t matter, but it was one I hadn’t heard (doesn’t make them right).

The book is very well written for a general audience – it was enjoyable to read (not all my nonfiction books are). Highly recommend.