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Speaker 1: Welcome to How to Money. I'm Joel and I am

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Speaker 1: mat and today we're talking about why insurance is so

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Speaker 1: funky with Amy Finkelstein.

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Speaker 2: That's right, purchasing and insurance policy. Honestly, it's one of

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Speaker 2: those seemingly boring tasks that a companies entering adulthood.

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Speaker 1: And so whether it was like.

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Speaker 2: Your parents just making you chip in on the higher

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Speaker 2: costs of car insurance because you were a teenage driver,

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Speaker 2: or maybe seeing the health insurance deduction come out of

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Speaker 2: your paycheck every two weeks that line item, or maybe

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Speaker 2: you're at the point now too where you've realized it's

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Speaker 2: time to get a life insurance policy because you have

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Speaker 2: folks who are dependent on your income. Either way, it's

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Speaker 2: typically adult task to get insurance, and we just file

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Speaker 2: it away, you know, those documents like we either save

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Speaker 2: them on a folder on our computer, we follow them

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Speaker 2: away without giving them much thought. But our guest, Amy Finkelstein,

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Speaker 2: who is a distinguished Professor of Economics at MIT, she

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Speaker 2: is here today to explain why insurance is actually fascinating.

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Speaker 2: She writes about this along with her co authors in

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Speaker 2: her new book Risky Business, and she writes just how

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Speaker 2: understanding the insurance market, how it can help us to

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Speaker 2: understand why it's so expensive, what types of policies out

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Speaker 2: there are just terrible, and even what steps we can

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Speaker 2: do to reduce the cost of insurance in our own lives. Amy,

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Speaker 2: thank you so much for joining us today on the podcast.

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Speaker 3: Thanks so much for having me here.

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Speaker 1: Glad to have you. Amy. The first question that we

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Speaker 1: ask everyone who comes on the show is what they

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Speaker 1: like to splur John, Matt and I were drinking a

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Speaker 1: delicious triple ipa right now, and so that's something that

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Speaker 1: we spend some would say too much money on, but

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Speaker 1: we're still being smart, saving and investing for the future.

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Speaker 1: What is that thing you like to splor John in

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Speaker 1: your life.

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Speaker 3: That's a great question. I'd say the thing I spend

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Speaker 3: too much money on. It's not to say I spend

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Speaker 3: very much of it at all, but any amount is

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Speaker 3: too much. Is you know those like candy stores that

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Speaker 3: have like the glass jars full of candies you pay

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Speaker 3: by the pound or whatever. I just love going in

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Speaker 3: there and like scourging on some like M and MS,

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Speaker 3: and it drives my husband nuts. He's like, literally, you

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Speaker 3: could just go to the convenience store and buy a

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Speaker 3: pack of EM and MS, and it would be so much.

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Speaker 3: There's something about the act of, you know, getting it

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Speaker 3: from those glass jars, scooping them out of the big bin,

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Speaker 3: putting them in my paper bag, and eating them from

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Speaker 3: that bag rather than from the pack, and the convenience.

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Speaker 1: It's like a sensory experience. Isn't like that?

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Speaker 2: Is it? Because I feel like that's the old school

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Speaker 2: way of getting candies. Does it harken back to a

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Speaker 2: life that we no longer childhood no longer exists.

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Speaker 3: Or I'm that old? But thanks for the thought. I

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Speaker 3: don't know that. I think initially it just was like

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Speaker 3: I was in there, and you know, I like it.

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Speaker 3: There's something about the feeling, the sensory experience, and now

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Speaker 3: it's the fact that it is literally a waste of money.

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Speaker 3: They're a very small waste of money, but sometimes it

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Speaker 3: just feels a little bit rebellious and a little bit

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Speaker 3: you know, decadent. Yeah, to do it.

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Speaker 2: I love it. No, I think that's the coolest thing ever, because,

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Speaker 2: like like your husband says, you could you could go

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Speaker 2: to Costco and buy like a five pound bag of

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Speaker 2: it for absolutely nothing, But for you to go into

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Speaker 2: that candy store. There's yeah, there's a there's an entire

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Speaker 2: experience associated with that. And I say more parad I

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Speaker 2: like that, this is what you do with your rebellius streak.

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Speaker 2: You don't go out there and get tattoos or like,

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Speaker 2: this is how you live that out.

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Speaker 3: I mean, you know, I'm an economics professor. There's a

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Speaker 3: limits to Bellian looks.

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Speaker 2: Like right, Amy, Okay, let's let's get into insurance. How

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Speaker 2: is it that insurance differs from broccoli specifically? And then

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Speaker 2: how did broccoli And it's sort of a roundabout way

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Speaker 2: cause you to write this book?

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Speaker 3: Well, thank you so much for asking that question, because

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Speaker 3: we my co authors Lauren and iv and Ray Fisman

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Speaker 3: and I actually somewhat jokingly, somewhat seriously thought of titling

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Speaker 3: the book why is Insurance different from broccoli? Except that

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Speaker 3: we decided that putting two things no one likes in

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Speaker 3: your title is probably worse than just one.

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Speaker 1: The publisher was like, no, you guys can't exactly.

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Speaker 3: But to tell you the origins of that question, it

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Speaker 3: actually goes back to twenty twelve, during the Supreme Court's

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Speaker 3: hearing of oral arguments about whether the mandate in the

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Speaker 3: Affordable Care Act otherwise known as Obamacare, that everyone had

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Speaker 3: to buy health insurance, whether that was constitutional, whether you

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Speaker 3: could mandate that as the Act did, that everyone had

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Speaker 3: to buy health insurance. And at the risk of stating

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Speaker 3: the obvious, I and I presume my co authors, so

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Speaker 3: I won't implicate them. I know nothing about the law

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Speaker 3: or constitutional law. So we were just interested because we're

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Speaker 3: interested in policy, and particularly policy around insurance. And so

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Speaker 3: it was somewhat startling to hear then Supreme Court Justice

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Speaker 3: Antonin Scalia, during oral arguments, ask the question, well, if

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Speaker 3: the government can mandate that people buy health insurance, can

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Speaker 3: it also mandate that people buy broccoli or eat their broccoli. Now,

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Speaker 3: obviously he was making a rhetorical point, trying to conjure

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Speaker 3: up the image of a you know, intrusive state. And

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Speaker 3: I would warrant that, you know, he's a very smart man,

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Speaker 3: or he was before he passed away. I'm sure he

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Speaker 3: knows the difference between insurance and broccoli. But the fact

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Speaker 3: that he could even score rhetorical points on that question

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Speaker 3: made us, as insurance afficionados or insurance geeks, you know,

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Speaker 3: sort of sit up and take note that you know

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Speaker 3: that if a Supreme Court justice could ask that question,

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Speaker 3: we dare say, there are a lot of people in

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Speaker 3: the world that don't understand what we see as the

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Speaker 3: fundamental difference between insurance, and so I'll let you know

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Speaker 3: what it is. It's actually quite simple, but it's very important.

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Speaker 3: It's that the supermarket doesn't care who buys its broccoli.

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Speaker 3: The costs to the supermarket of purchasing the broccoli and

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Speaker 3: reselling it are the same no matter which customer buys it.

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Speaker 3: But your insurer cares a great deal about who they

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Speaker 3: sell insurance to. And that's because insurance is an example

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Speaker 3: of what economists call a selection market. Labor markets are

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Speaker 3: another example, credit cards, certain types of education in which

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Speaker 3: the profits of the organization selling the product depend not

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Speaker 3: only on how much they sell, like in any market,

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Speaker 3: including the market for broccoli, but also on who they

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Speaker 3: sell to. So if you're a auto insurer and you

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Speaker 3: sell to a accident prone, risky, reckless driver, it's going

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Speaker 3: to cost you more in claims you have to pay

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Speaker 3: out than if you sell to a boring safety you know,

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Speaker 3: middle aged woman like myself, who you know, inches along

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Speaker 3: in her car, writes. Actually, as we talk about in

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Speaker 3: the book not to have any spoilers. I'm separately a

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Speaker 3: terrible driver, But that's an example of private information we'll

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Speaker 3: get into and so and so. Why is that a problem.

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Speaker 3: It's because if if the insurance company doesn't know if

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Speaker 3: you're a good driver or a bad driver, and it

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Speaker 3: sets its price based on sort of a typical accident rate,

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Speaker 3: maybe for someone of your basic demographics, who's going to

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Speaker 3: find that product particularly appealing. Well, the ones who know that,

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Speaker 3: they tend to get into a lot of fender benders

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Speaker 3: or worse, and they're going to have a lot of

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Speaker 3: claims on their uh, make a lot of claims on

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Speaker 3: their policies. So what that's going to do is increase

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Speaker 3: the costs to the insurance company of providing that insurance,

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Speaker 3: and they're going to have to raise their price. And

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Speaker 3: that is a real problem because then the safe driver,

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Speaker 3: the ones who tend to have very few accidents, are

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Speaker 3: going to be faced with having to pay a ridiculously

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Speaker 3: high price for their automobile insurance. And the reason that's

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Speaker 3: a problem is because I think the fundamental misconception about

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Speaker 3: insurance is it's about reducing risk, So you want it

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Speaker 3: whether you're safe or like myself a rather terrible driver,

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Speaker 3: because everyone, no matter how careful they are, can be

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Speaker 3: unfortunate enough to get into an auto accident. No matter

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Speaker 3: how healthy they are, they can have a medical expense,

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Speaker 3: et cetera, et cetera. So the promise, dare I say,

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Speaker 3: the excitement of insurance is it can help each and

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Speaker 3: every one of us achieve some measure of peace and

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Speaker 3: security in an uncertain and dangerous world. And the problem

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Speaker 3: is when there's this selection problem that people know more

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Speaker 3: than the insurance company knows about how likely they are

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Speaker 3: to have claims, it can go in and ruin the

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Speaker 3: market for everyone.

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Speaker 1: I just want to say, first off, you're getting me

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Speaker 1: pumped up. Get your enthusiasm is contagious. It am getting

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Speaker 1: about insurance.

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Speaker 2: I'm going to go ahead and apologize for calling insurance

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Speaker 2: boring from early on, Amy.

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Speaker 3: Thank you very much.

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Speaker 2: That means a lot.

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Speaker 1: Right, Well, talk to us about how insurance rates are determined, Amy,

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Speaker 1: because for instance, you say in your book that all

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Speaker 1: State had like three pricing tiers back in the day.

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Speaker 1: It was kind of basic in how you chose the

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Speaker 1: sort of driver's insurance, the auto insurance that you that

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Speaker 1: you had. Now they have like fifteen hundred tiers. Why

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Speaker 1: is it so complicated? Why has it gotten so much

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Speaker 1: more complex over the years.

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Speaker 3: So that's a great question if you start with the

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Speaker 3: problem being the one I described it. Insurance is something

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Speaker 3: that can benefit everyone, the high risk and the low risk.

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Speaker 3: But that if customers know more about how likely they

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Speaker 3: are to have accidents or claims, and the insurance company

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Speaker 3: knows the high cost, customers are likely to flood the market,

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Speaker 3: driving up prices and making the product worse for everyone.

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Speaker 3: And sometimes in extreme cases, as we talk about in

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Speaker 3: the book, examples of markets that can be made to

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Speaker 3: completely disappear. Then these can be hard to think of

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Speaker 3: because they don't exist, so you're not confronted with them.

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Speaker 3: But we give examples in the book, like the market

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Speaker 3: for layoff insurance if you lose your job, or the

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Speaker 3: market for divorce insurance, which actually some entrepreneur tried to

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Speaker 3: offer and guess guess what they found that you know

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Speaker 3: who tended to buy those policies. Anyways, exactly if you

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Speaker 3: didn't already dislike your spouse, hearing that he just bought

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Speaker 3: divorce insurance, might might be might be the extraw that

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Speaker 3: broke the camera but but so, of course, not all

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Speaker 3: insurance insurance markets do exist. You can buy automobile insurance,

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Speaker 3: life insurance, pet insurance, many examples that we talk about

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Speaker 3: on the book, and part of the way that those

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Speaker 3: markets function or function partially is precisely because insurers try

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Speaker 3: to undo the informational advantage of the customer by collecting

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Speaker 3: all kinds of information about them. So if you've ever

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Speaker 3: filled out an automobile insurance application, or if you're as

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Speaker 3: crazy as us and you do it just for fun

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Speaker 3: or as part of research and writing this book, you'll

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Speaker 3: find that they ask not only a bunch of I think,

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Speaker 3: pretty natural and straightforward questions such as how long have

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Speaker 3: you had your license, how many accidents have you had

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Speaker 3: with the make and model of your car, et cetera,

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Speaker 3: but they also ask a bunch of questions that might

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Speaker 3: seem very odd, Like they ask about your credit score,

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Speaker 3: they ask about your marital status, they ask about your GPA.

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Speaker 3: We were kind of excited about that one, since we're professors,

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Speaker 3: and so why are they doing that. It's because it

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Speaker 3: turns out that actuaries who've spent some time playing with

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Speaker 3: large amounts of data on people who buy automobile insurance

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Speaker 3: have found that, you know, it turns out people with

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Speaker 3: higher grades tend to be safer drivers. Not everyone, but

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Speaker 3: you know, on average, marital status is a predictor of accidents,

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Speaker 3: et cetera.

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Speaker 1: What about whether or not you have divorce insurance?

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Speaker 3: Is that that I don't know. But so they ask

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Speaker 3: all these questions to try to equalize the playing field,

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Speaker 3: as it were, level the playing field so that the

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Speaker 3: market can function. And one of the things that we

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Speaker 3: talked about in the book that we at least found

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Speaker 3: pretty surprising is, you know, we start with the history

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Speaker 3: of life insurance in the time of ancient Rome, and

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Speaker 3: perhaps it's not surprising then that when they weren't even

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Speaker 3: pricing based on age, you know, customers were able to

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Speaker 3: you know, game the market. But even today, in the

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Speaker 3: information age and the you know, in the age of

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Speaker 3: big data, it still turns out that not first time drivers,

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Speaker 3: but you know, once you've been a driver for a

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Speaker 3: couple of years, it turns out you still know more

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Speaker 3: about your risk, your likelihood of having an accident than

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Speaker 3: what the insurance company can figure out even with all

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Speaker 3: these detailed questions, So you still get the problems that

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Speaker 3: selection causes which are either non existent insurance or very

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Speaker 3: expensive insurance, or insurance with all kinds of clauses and

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Speaker 3: fine print and waiting periods, all designed to try to

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Speaker 3: combat these these selection problems.

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Speaker 2: And this makes sense that the different companies out there,

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Speaker 2: So we're talking about car insurance, auto insurance, So using

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Speaker 2: that as an example, like there are different companies, different

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Speaker 2: providers out there that want to track your driving for instance,

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Speaker 2: Like that is a piece of data that they want

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Speaker 2: to know. They want to know how often you drive

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Speaker 2: at night, how quickly you accelerate, how quickly you stop

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Speaker 2: with the accelerometers that are built into your phone. And

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Speaker 2: so that makes sense. And I'm curious what you think

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Speaker 2: our response to that should be. I mean, should it

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Speaker 2: be to say, yeah, all right, let's let's give you

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Speaker 2: all the information possible in order to make this a

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Speaker 2: more efficient market, or do you see that being a

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Speaker 2: problem just from like essentially from a privacy certain standpoint.

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Speaker 3: It's a great question, and I'm going to give the

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Speaker 3: annoying economist answer. So President Truman apparently famously equipped that

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Speaker 3: he wished he could find a one handed economic advisor

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Speaker 3: because his economist advisors were always saying on the one hand, this,

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Speaker 3: on the other hand, that so and in the book,

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Speaker 3: I think we're very upfront from the beginning that if

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Speaker 3: you're looking for simple solutions and clear, you know, clear

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Speaker 3: ways forward. That's for the most part, we have a

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Speaker 3: couple of things that we think are very obvious, and

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Speaker 3: every war should be obvious to everyone. But for the

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Speaker 3: most part, our goal is not to say, well, this

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Speaker 3: is the right way to think about it, but to

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Speaker 3: lay out the trade offs. And in the example you gave,

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Speaker 3: you know, the the pro side of letting insurers collect

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Speaker 3: as much information as they want and price on as

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Speaker 3: much information as they can is precisely what you were

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Speaker 3: alluding to help make the market work better. There are

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Speaker 3: two very important drawbacks that have to be weighed against.

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Speaker 3: That one is the one that you already alluded to,

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Speaker 3: which is notions of privacy. Right, at some point, maybe

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Speaker 3: it's just creepy to have to know that your automobile

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Speaker 3: insurance company is tracking you on your phone, and you know,

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Speaker 3: I know my teenagers think it's creepy that I can

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Speaker 3: track them. You know, how much creepier to know that

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Speaker 3: my insurer is also knowing where I am? Although perhaps

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Speaker 3: they'd prefer that. But the other issue is something that

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Speaker 3: relates to the question of what it is we're trying

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Speaker 3: to ensure. So if you price on all the predictors

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Speaker 3: of risk, then you get rid of the issue of

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Speaker 3: private information and selection at a point in time, But

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Speaker 3: in doing so, you destroy the market for insurance against

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Speaker 3: being the type of person who's a high risk. So

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Speaker 3: a sort of silly example we give in the book

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Speaker 3: is it's not my fault that I'm a bad driver?

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Speaker 3: Why can't I Why should I have to pay more

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Speaker 3: for insurance? I was born incompetent. A slightly more there

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Speaker 3: is or a much more serious example, you know, when

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Speaker 3: it gets into issues of whether insurance should be able

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Speaker 3: to price health and life insurance differently for people who

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Speaker 3: have a elevated risk of some genetic disease a breast

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Speaker 3: cancer gene for example. So on the one hand, if

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Speaker 3: they're not allowed to, that means that people who know

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Speaker 3: they have a family history that puts them at risk

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Speaker 3: for this think they're on average more likely to have

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Speaker 3: medical expenses and are going to buy insurance, driving up

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Speaker 3: the price for everyone. On the other hand, if they're

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Speaker 3: not allowed to price insurance based on this, you're going

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Speaker 3: to get that selection problem. On the other hand, if

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Speaker 3: they are, then then you know, sort of before we're born,

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Speaker 3: or behind the veil of ignorance, as it were, there's

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Speaker 3: no insurance against being unfortunate enough to be at elevated

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Speaker 3: risk for certain diseases. And we give one example of

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Speaker 3: how this played out. I think we could all agree

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Speaker 3: quite badly in the sense that in New York and

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Speaker 3: New Jersey in the nineteen nineties, in the small group

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Speaker 3: health insurance markets, so not the employer provided market, but

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Speaker 3: the market for people who don't have employer provided health insurance,

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Speaker 3: both states, at different points decided that it was not

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Speaker 3: fair to charge people different prices for sort of more

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Speaker 3: generous coverage based on their age, or their gender, or

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Speaker 3: their pre existing health conditions. So they outlawed that. They

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Speaker 3: imposed what's called community rating, which means everyone in the

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Speaker 3: community has to be offered the same price for insurance

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Speaker 3: and also guaranteed issue you can't refuse to serve some customers.

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Speaker 3: And this was done, we believe in the out of

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Speaker 3: a fairness or equity goal. What ended up happening is

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Speaker 3: the market for this more comprehensive insurance unraveled completely and

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Speaker 3: got destroyed because when you set the price, when you're

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Speaker 3: allowed to price based on anything, the people who are

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Speaker 3: more likely to find that a good deal are the

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Speaker 3: ones who already know they have some pre existing condition,

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Speaker 3: or they're older, are going to have more medical expenses.

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Speaker 3: And so the result was there was a classic death spiral.

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Speaker 3: Claims kept going up, so the insurer kept raising prices,

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Speaker 3: so the people who stayed in were even sicker, and

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Speaker 3: on and on it went till the market essentially collapsed completely.

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Speaker 3: And so we sort of say, on the one hand,

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Speaker 3: that's fair, everyone faces the same terrible situation of no insurance.

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Speaker 3: But it was a sort of beggar thy neighbor fairer

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Speaker 3: where we made everyone worse off in the interests of fairness,

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Speaker 3: and that, at least to us, seemed a little extreme.

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Speaker 1: Yeah, it's kind of like the American Airlines All you

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Speaker 1: Can Fly Misshap story the detail or early in the

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Speaker 1: book as well, which is just a fascinating read. And

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Speaker 1: we actually want to talk more about healthcare, health insurance,

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Speaker 1: how messed up that is, and along with some other

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Speaker 1: questions we have for you Amy about insurance. We'll get

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Speaker 1: to those right after this.

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Speaker 2: We are back and we're talking about insurance with Amy

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Speaker 2: Finkelstein and Amy, I guess we kind of want to

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Speaker 2: get a little more practical as well, and so on

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Speaker 2: an individual level, we kind of talked about insurance from

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Speaker 2: a very high view, why it is that some markets fail,

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Speaker 2: why they collapse completely. But on an individual level, why

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Speaker 2: is insurance so often misunderstood? Specifically in what ways are

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Speaker 2: everyday folks like us, like our listeners out there, how

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Speaker 2: are folks using insurance improperly?

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Speaker 3: Perhaps that's a really good question. I think the first,

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Speaker 3: or perhaps the most important thing to understand about insurance

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Speaker 3: is that insurance is about protecting against risk, not getting

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Speaker 3: the policy once you know you need it. Once you

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Speaker 3: know you need it, it's too late. You can't the

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Speaker 3: risk has occurred and there's nothing to be done for you.

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Speaker 1: Kind of like didn't your husband try to get triple A?

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Speaker 3: I was about to throw them under the bus for

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Speaker 3: so please do please do right? So, the point about

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Speaker 3: durrance is you can't wait till the accident occurs to

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Speaker 3: try to ensure it. And the example, one of the

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Speaker 3: examples we give in the book is my hapless husband. Hapless,

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Speaker 3: and perhaps many respects, but in this particular respect. We

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Speaker 3: were in graduate school and he had an old, beat

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Speaker 3: up car and he had you know, bare bones Triple

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Speaker 3: A towing insurance that I think would only tow you,

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Speaker 3: you know, to the nearest gas station or something. And

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Speaker 3: his car broke down and he decided that he really

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Speaker 3: wanted to go to his trustee childhood mechanic, who he

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Speaker 3: was sure would treat him well, give him a good deal.

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Speaker 3: And that was, you know, more than the nearest nearest

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Speaker 3: gas station, who was about I think twenty miles away

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Speaker 3: from from his childhood home. So you know, this was

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Speaker 3: actually in the early days of cell phone, so this

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Speaker 3: was the late nineties, so he's very happy he had

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Speaker 3: a cell phone and he used it to standing there

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Speaker 3: by the side of the road with his broken down

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Speaker 3: car to call Triple A an upgrade to the premium plan,

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Speaker 3: which which you pay more per month for the insurance.

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Speaker 3: But one of the things that comes with is you know,

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Speaker 3: towing of I think up to maybe one hundred miles

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Speaker 3: or something. So you know, he thought he was very clever.

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Speaker 3: The person on the other end happily takes his credit card,

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Speaker 3: tells him that, you know, he'll be starting to pay

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Speaker 3: higher premiums, you know, in the next payment cycle, and

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Speaker 3: they'll upgrade that policy right away, sir, and it will

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Speaker 3: go into effect in two weeks, right because waiting periods

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Speaker 3: which are a frustrating aspect of insurance and do undermine

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Speaker 3: some of the insurance value once you buy a policy

390
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Speaker 3: or not really insured for the first two weeks, but

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Speaker 3: they're designed precisely to deal with the situation in which

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Speaker 3: people wait until they the risk has occurred to try

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Speaker 3: to buy the policy. So that's one mistake that people make.

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Speaker 3: I think a related mistake is that people can say, gosh,

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Speaker 3: you know, I've been paying my homeowner's insurance for years

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Speaker 3: and I've never had a pay I've never gotten a

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Speaker 3: claim on it.

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Speaker 1: What a waste cham I wish a tree had gone

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Speaker 1: through my room.

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Speaker 3: Well, precisely, like you know, that's exactly the point that

401
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Speaker 3: actually you were getting something out of that insurance all

402
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Speaker 3: those years. You were getting, you know, the peace of

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Speaker 3: mind of knowing that if a tree did fall on

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Speaker 3: your house, you would be covered. You wouldn't have to

405
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Speaker 3: pay for that out of your own pocket. And therefore, relatedly,

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Speaker 3: and this is where the economics part, not just the

407
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Speaker 3: psychology comes in. You don't have to put money aside

408
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Speaker 3: to save for the eventuality of you know, I might

409
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Speaker 3: have a really expensive problem with my home. Instead, you

410
00:22:36,920 --> 00:22:39,920
Speaker 3: can use that money on, you know, craft beer or

411
00:22:39,920 --> 00:22:43,199
Speaker 3: overpriced M and M's, or whatever it is you like

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Speaker 3: to splurge on, and knowing that you're just paying that

413
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Speaker 3: small premium so that if something occurs. And the reason

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Speaker 3: the premium is small is precisely because there's only some

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Speaker 3: chance that it occurs. If you wait to buy it

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Speaker 3: till it has occurred, you can't get a low premium.

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Speaker 1: Matt's really been wanting to use his life insurance policy,

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Speaker 1: and I keep trying to explain to him, Dude, it's

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Speaker 1: not you probably don't, I don't think, so.

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Speaker 2: Just keep waiting for that payday. You know what, am

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Speaker 2: I gonna be able to enjoy?

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Speaker 1: My life's going to be rich when that happens, exactly exactly.

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Speaker 1: There's so many insurance products out there, though, and it's

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Speaker 1: tough to know which ones to prioritize. I think you

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Speaker 1: gave a clear idea understanding of what insurance is for,

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Speaker 1: but how do we prioritize which insurance we bring into

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Speaker 1: our lives? Like there are some requirements right to have

428
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Speaker 1: certain kinds of insurance, Like if you're driving a car,

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Speaker 1: you're breaking the law in I think forty nine states

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Speaker 1: if you don't have auto insurance. But like, how do

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Speaker 1: we know then after that, which insurance products make sense

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Speaker 1: for us?

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Speaker 3: Another great question. So first all up, vote don't break

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Speaker 3: the law. That's a good one. But then I think

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00:23:43,119 --> 00:23:47,120
Speaker 3: when you have the choice, you want to think about

436
00:23:47,240 --> 00:23:52,159
Speaker 3: insurance as insuring large risks, right, because if you go

437
00:23:52,200 --> 00:23:53,880
Speaker 3: back to the notion of if you don't have insurance,

438
00:23:53,880 --> 00:23:56,240
Speaker 3: you have to put a lot of money aside just

439
00:23:56,280 --> 00:24:00,400
Speaker 3: sitting there in case something happens. You know, if it's

440
00:24:00,440 --> 00:24:04,360
Speaker 3: a very small cost, if the risk occurs, maybe it's

441
00:24:04,359 --> 00:24:06,320
Speaker 3: not worth it to buy the insurance given that they're

442
00:24:06,359 --> 00:24:09,560
Speaker 3: you know, evidently you know, always some administrative costs or

443
00:24:09,560 --> 00:24:13,040
Speaker 3: insurer profits that are baked in. So we try to

444
00:24:13,200 --> 00:24:16,880
Speaker 3: ensure things that, you know, like like our home, because

445
00:24:16,920 --> 00:24:20,040
Speaker 3: if our home had a major problem or you know,

446
00:24:20,080 --> 00:24:22,320
Speaker 3: burned down or something that would be not something we

447
00:24:22,359 --> 00:24:26,359
Speaker 3: could afford to fix ourselves. But we don't ensure our toaster,

448
00:24:27,359 --> 00:24:31,320
Speaker 3: or our television or our vacations because those are things

449
00:24:31,400 --> 00:24:34,600
Speaker 3: that yes, it would be very unfortunate and annoying, and

450
00:24:34,600 --> 00:24:37,080
Speaker 3: I wouldn't be nearly as sanguine as I'm sounding now

451
00:24:37,160 --> 00:24:40,080
Speaker 3: if our you know, if we missed our vacation. But

452
00:24:40,200 --> 00:24:44,800
Speaker 3: those are relatively small costs and therefore probably less important

453
00:24:44,800 --> 00:24:47,879
Speaker 3: to have insurance for it. It's the big things that

454
00:24:47,920 --> 00:24:50,640
Speaker 3: you want insurance for. One way you can actually get

455
00:24:50,640 --> 00:24:55,000
Speaker 3: a good deal on insurance is if you recognize that principle.

456
00:24:55,800 --> 00:24:59,159
Speaker 3: Then again, go back to homeowners insurance. You want to

457
00:24:59,200 --> 00:25:02,480
Speaker 3: get a policy that pays for the catastrophic risk. But

458
00:25:02,600 --> 00:25:06,200
Speaker 3: maybe you're okay with even a pretty big deductible because that,

459
00:25:06,320 --> 00:25:07,919
Speaker 3: you know, a sort of a certain amount that you

460
00:25:07,960 --> 00:25:10,800
Speaker 3: have to pay yourself first before the insurance will pay,

461
00:25:11,080 --> 00:25:15,120
Speaker 3: because that can dramatically lower the premium. And the reason

462
00:25:15,160 --> 00:25:18,640
Speaker 3: it can dramatically lower the premium is precisely the selection

463
00:25:18,760 --> 00:25:21,159
Speaker 3: problem that our book is about. That if you know

464
00:25:21,400 --> 00:25:23,960
Speaker 3: your home is, you know, falling apart at the seam,

465
00:25:24,080 --> 00:25:27,320
Speaker 3: so to speak, you're going to want a very comprehensive policy.

466
00:25:27,359 --> 00:25:29,080
Speaker 3: You're not going to want, you know, the first five

467
00:25:29,160 --> 00:25:31,000
Speaker 3: or ten thousand dollars that you have to pay out

468
00:25:31,040 --> 00:25:33,879
Speaker 3: of pocket. And so if you're if you're willing to

469
00:25:33,960 --> 00:25:36,280
Speaker 3: forego that first five or ten thousand dollars, you can

470
00:25:36,280 --> 00:25:39,720
Speaker 3: get a much much lower premium to cover the rest

471
00:25:39,760 --> 00:25:42,760
Speaker 3: of the of the cost should something really catastrophic happens.

472
00:25:42,800 --> 00:25:44,199
Speaker 3: It does mean that, you know, if you have a

473
00:25:44,240 --> 00:25:47,320
Speaker 3: minor boiler leak, you may be out of pocket yourself.

474
00:25:47,840 --> 00:25:50,840
Speaker 2: Right basically, like you're talking, you know, the way to

475
00:25:50,920 --> 00:25:53,640
Speaker 2: think about what insurance products to choose is to ensure

476
00:25:53,680 --> 00:25:56,200
Speaker 2: there's larger items. And I think even said this word,

477
00:25:56,240 --> 00:25:58,639
Speaker 2: but if there is an expense in our life that

478
00:25:58,720 --> 00:26:02,680
Speaker 2: might be relatively large. And the problem there for a

479
00:26:02,720 --> 00:26:05,600
Speaker 2: lot of different folks is that we all have different incomes,

480
00:26:05,640 --> 00:26:08,320
Speaker 2: we all have different networths, different amounts of money in

481
00:26:08,359 --> 00:26:10,560
Speaker 2: the bank. Do you have any sort of rule of

482
00:26:10,600 --> 00:26:13,080
Speaker 2: thumb or is there maybe just a healthy way to

483
00:26:13,160 --> 00:26:17,560
Speaker 2: think about how individuals should be making that calculation themselves.

484
00:26:17,600 --> 00:26:22,480
Speaker 2: Because for one person, the idea of ensuring like a

485
00:26:22,520 --> 00:26:25,639
Speaker 2: trip or vacation trip insurance, that would be annoying, but

486
00:26:26,320 --> 00:26:28,399
Speaker 2: I can handle that. But for somebody else, for instance,

487
00:26:28,400 --> 00:26:30,320
Speaker 2: who may not have any money in the bank, and

488
00:26:30,359 --> 00:26:34,000
Speaker 2: this was you know, they scraped together pennies and dollars

489
00:26:34,000 --> 00:26:36,320
Speaker 2: over the course of years in order to make it

490
00:26:36,359 --> 00:26:38,920
Speaker 2: to this destination for their honeymoon, that kind of thing.

491
00:26:38,920 --> 00:26:41,040
Speaker 2: It would be a really big deal. And so I

492
00:26:41,080 --> 00:26:43,080
Speaker 2: would like to get your thoughts on maybe how to

493
00:26:43,160 --> 00:26:44,960
Speaker 2: approach that dilemma.

494
00:26:45,240 --> 00:26:49,480
Speaker 3: Yeah, that's interesting. So your example already made me think

495
00:26:49,480 --> 00:26:52,240
Speaker 3: of something that I wouldn't necessarily have thought of without it,

496
00:26:52,280 --> 00:26:58,560
Speaker 3: which is, you know, ensuring against unpleasant things happening is

497
00:26:58,600 --> 00:27:01,840
Speaker 3: a little different from insuring against expenses that you have

498
00:27:01,920 --> 00:27:04,800
Speaker 3: to pay so to take the trip. Example, when I

499
00:27:04,800 --> 00:27:08,560
Speaker 3: said we don't think we should ensure our trips, it's

500
00:27:08,600 --> 00:27:11,159
Speaker 3: not because, oh, if our trip is canceled, we'll just

501
00:27:11,240 --> 00:27:13,760
Speaker 3: you know, go out and immediately schedule another trip. There

502
00:27:13,800 --> 00:27:17,600
Speaker 3: is a real loss, but it's a calculated risk that,

503
00:27:17,840 --> 00:27:21,879
Speaker 3: you know, given how much, given the probability of the

504
00:27:21,880 --> 00:27:25,840
Speaker 3: trip being canceled, and given the high prices of trip insurance,

505
00:27:25,880 --> 00:27:28,640
Speaker 3: in part because people who buy it are ones who

506
00:27:28,640 --> 00:27:31,080
Speaker 3: think they trip they know that the trip is likely

507
00:27:31,119 --> 00:27:34,040
Speaker 3: to be canceled. We are personal I mean, there's a

508
00:27:34,119 --> 00:27:36,800
Speaker 3: right or wrong answer here, but our personal preference is

509
00:27:36,840 --> 00:27:39,960
Speaker 3: that we would rather risk for going the trip than

510
00:27:40,200 --> 00:27:43,000
Speaker 3: you know, adding to the cost of every trip substantially

511
00:27:43,119 --> 00:27:47,080
Speaker 3: by buying this insurance. On the other hand, most of

512
00:27:47,119 --> 00:27:49,959
Speaker 3: the things that we tend to ensure are things that

513
00:27:50,000 --> 00:27:53,800
Speaker 3: you they're not a choice, They're not just obummer I

514
00:27:53,800 --> 00:27:56,320
Speaker 3: didn't get to go on my trip. Most people don't

515
00:27:56,320 --> 00:27:59,560
Speaker 3: have the luxury if their car breaks down of saying well,

516
00:27:59,560 --> 00:28:01,520
Speaker 3: I just won't fix my car. They need it to

517
00:28:01,560 --> 00:28:05,600
Speaker 3: get to work for example. Same with you know, a

518
00:28:05,640 --> 00:28:08,840
Speaker 3: medical expense. So there, I think the way to think

519
00:28:08,880 --> 00:28:11,840
Speaker 3: about it is if this is something that you really

520
00:28:11,880 --> 00:28:15,760
Speaker 3: are going to have to pay for and it's not

521
00:28:16,000 --> 00:28:20,720
Speaker 3: going to be possible or relatively easy to scrape together

522
00:28:20,840 --> 00:28:25,199
Speaker 3: that amount of money, then that's something to really you know,

523
00:28:25,280 --> 00:28:27,119
Speaker 3: to look at the pricing of course and think about,

524
00:28:27,240 --> 00:28:29,080
Speaker 3: you know, what your risks are, but that's something to

525
00:28:29,160 --> 00:28:33,280
Speaker 3: really consider insurance on. So again the toaster example. First

526
00:28:33,320 --> 00:28:35,720
Speaker 3: of all, dare I say many of us can live

527
00:28:35,760 --> 00:28:39,160
Speaker 3: without a toaster, but also, like you know, you can

528
00:28:39,200 --> 00:28:41,520
Speaker 3: buy a pretty darn cheap toaster. So most of us

529
00:28:41,560 --> 00:28:44,920
Speaker 3: are fortunate enough that it's annoying if our toaster breaks,

530
00:28:45,360 --> 00:28:47,920
Speaker 3: but either we can decide to live without a toaster

531
00:28:48,400 --> 00:28:51,080
Speaker 3: or to replace it on these.

532
00:28:51,040 --> 00:28:55,920
Speaker 1: Our neighbor's toaster exactly. Well, talk about self insurance then,

533
00:28:55,960 --> 00:28:58,240
Speaker 1: because to me, that's a huge part of the equation

534
00:28:58,520 --> 00:29:00,720
Speaker 1: and part of what helps us drive costs down as

535
00:29:00,800 --> 00:29:03,400
Speaker 1: well when it comes to the insurance market, is us

536
00:29:03,400 --> 00:29:06,400
Speaker 1: having saved up more money, it allows us to, for instance,

537
00:29:06,520 --> 00:29:09,360
Speaker 1: increase ourd deductible. I found that out the hard way recently,

538
00:29:09,400 --> 00:29:11,560
Speaker 1: as literally a tree fell through my roof amy and

539
00:29:12,320 --> 00:29:15,040
Speaker 1: we're talking about a fifty thousand dollars plus repair. I

540
00:29:15,160 --> 00:29:18,920
Speaker 1: have the super high percentage deductible. It's I'm in for

541
00:29:19,000 --> 00:29:21,400
Speaker 1: eighteen thousand dollars of this. But it saved me a

542
00:29:21,400 --> 00:29:23,760
Speaker 1: bunch of money over the years, and hopefully, hopefully I

543
00:29:23,840 --> 00:29:25,440
Speaker 1: will have an incident for many years to come and

544
00:29:25,480 --> 00:29:28,280
Speaker 1: it'll continue saving money even though I have this big outlay.

545
00:29:28,480 --> 00:29:30,640
Speaker 1: But how does us having more skin in the game

546
00:29:30,800 --> 00:29:32,160
Speaker 1: impact what we pay for insurance?

547
00:29:32,720 --> 00:29:35,760
Speaker 3: I mean, I think the more skin you're willing to

548
00:29:35,840 --> 00:29:39,200
Speaker 3: have in the game, the lower or more skin you're

549
00:29:39,240 --> 00:29:41,400
Speaker 3: able to have in the game, I should say, the

550
00:29:41,520 --> 00:29:43,880
Speaker 3: lower a price you can get for your insurance. And

551
00:29:43,960 --> 00:29:47,480
Speaker 3: let's take your homeowner's policy. So we had our own

552
00:29:47,480 --> 00:29:49,440
Speaker 3: I'm sorry to hear about the tree in your house.

553
00:29:49,800 --> 00:29:51,840
Speaker 3: We had our own experience, which we talk about in

554
00:29:51,880 --> 00:29:55,040
Speaker 3: the book. You know, I tried. I looked far and

555
00:29:55,080 --> 00:29:58,680
Speaker 3: wide for the highest homeowner's deductible we could find, which

556
00:29:58,720 --> 00:30:02,720
Speaker 3: at the time was tend Shortly after we bought our

557
00:30:03,280 --> 00:30:07,320
Speaker 3: home and our homeowners insurance policy, there was I don't

558
00:30:07,360 --> 00:30:10,040
Speaker 3: know where you're located, but if any of your listeners

559
00:30:10,040 --> 00:30:12,880
Speaker 3: are from the Northeast or from Boston in particular, the

560
00:30:12,960 --> 00:30:17,800
Speaker 3: winter of twenty fifteen was record levels of snow. Everyone's

561
00:30:17,840 --> 00:30:21,600
Speaker 3: house was leaking. The word ice dams was on everyone's lips,

562
00:30:21,760 --> 00:30:25,040
Speaker 3: and we had, you know, major leaks and completely blew

563
00:30:25,080 --> 00:30:29,120
Speaker 3: through our deductible. The next year, our boiler broke and

564
00:30:29,680 --> 00:30:32,080
Speaker 3: once again we blew through our deductible. And it caused

565
00:30:32,120 --> 00:30:36,640
Speaker 3: my long suffering husband to comment that it sure was

566
00:30:36,720 --> 00:30:40,560
Speaker 3: expensive being married to a so called insurance expert. But

567
00:30:40,880 --> 00:30:43,520
Speaker 3: and here's the silver lining for you as well. You know,

568
00:30:43,600 --> 00:30:46,200
Speaker 3: he's nothing if not, you know, fair, and he actually

569
00:30:46,200 --> 00:30:51,040
Speaker 3: went and calculated it. And despite those two major events

570
00:30:51,080 --> 00:30:53,480
Speaker 3: in which we had to pay the full deductible. You know,

571
00:30:53,520 --> 00:30:56,160
Speaker 3: we moved into our house in two thousand and nine,

572
00:30:56,280 --> 00:30:57,920
Speaker 3: so we've been there a long time and there's no

573
00:30:58,080 --> 00:31:01,360
Speaker 3: question that even counting those deductibles that we had to

574
00:31:01,400 --> 00:31:05,600
Speaker 3: pay the substantially lower annual premiums from being willing to

575
00:31:05,640 --> 00:31:09,520
Speaker 3: bear that amount of the risk. We've still come out ahead,

576
00:31:10,040 --> 00:31:13,200
Speaker 3: and I suspect you would find that you had as well.

577
00:31:13,280 --> 00:31:15,360
Speaker 3: So hopefully that gives you some consolation.

578
00:31:15,520 --> 00:31:17,080
Speaker 1: I think it will too. Feels like a gut punch

579
00:31:17,080 --> 00:31:20,000
Speaker 1: in the moment, but yeah, I have confidence in in

580
00:31:20,000 --> 00:31:23,000
Speaker 1: the numbers that I've run and in the reality that

581
00:31:23,200 --> 00:31:25,520
Speaker 1: hopefully you're not following a claim every year or even every.

582
00:31:25,360 --> 00:31:27,480
Speaker 2: Five years petically. That's where the I mean, that's where

583
00:31:27,480 --> 00:31:29,160
Speaker 2: you run the math. Yeah, you run the numbers, you

584
00:31:29,160 --> 00:31:32,120
Speaker 2: do the math, and you trust the data as opposed

585
00:31:32,160 --> 00:31:34,080
Speaker 2: to like a knee jerk reaction where you might make

586
00:31:34,120 --> 00:31:36,200
Speaker 2: a change. And so I think it's wise that your

587
00:31:36,280 --> 00:31:38,160
Speaker 2: husband also did that.

588
00:31:38,160 --> 00:31:41,000
Speaker 1: Amy. So yeah, let's talk about healthcare.

589
00:31:41,360 --> 00:31:45,040
Speaker 2: Health insurance here, because the best of all insurance, yeah right, obviously,

590
00:31:45,240 --> 00:31:49,160
Speaker 2: so easy to navigate, so cost effective, well and specifically,

591
00:31:49,240 --> 00:31:51,840
Speaker 2: like you touch on this just barely in your book,

592
00:31:52,080 --> 00:31:55,400
Speaker 2: but I mean, it costs a slive of middle class

593
00:31:55,440 --> 00:31:58,360
Speaker 2: Americans just like a small fortune every single year. And

594
00:31:58,440 --> 00:32:00,600
Speaker 2: so with that being the case, there are some folks

595
00:32:00,680 --> 00:32:04,920
Speaker 2: like Joel and I we've turned to an insurance like product,

596
00:32:05,480 --> 00:32:07,760
Speaker 2: and I say insurance like because it's not insurance, it's

597
00:32:07,800 --> 00:32:11,200
Speaker 2: health sharing. So because they can't technically be called insurance,

598
00:32:11,320 --> 00:32:12,760
Speaker 2: one of the reasons for that is because they're not

599
00:32:12,800 --> 00:32:15,520
Speaker 2: regulated in the same way. But some of these have

600
00:32:15,520 --> 00:32:17,960
Speaker 2: been around for decades. What's your take on this model

601
00:32:18,000 --> 00:32:21,160
Speaker 2: of healthcare sharing as opposed to actual insurance.

602
00:32:21,680 --> 00:32:24,840
Speaker 3: So let me start by noting one of the things

603
00:32:24,880 --> 00:32:31,280
Speaker 3: that I think is unusual, perhaps unique about health insurance

604
00:32:31,320 --> 00:32:34,080
Speaker 3: compared to any other type of insurance, which goes back

605
00:32:34,240 --> 00:32:37,160
Speaker 3: to something you were asking about about, you know, how

606
00:32:37,160 --> 00:32:39,800
Speaker 3: can you decide what makes sense for you? People have

607
00:32:39,840 --> 00:32:44,000
Speaker 3: all kinds of different incomes. Well, all of the risks

608
00:32:44,080 --> 00:32:47,560
Speaker 3: we've been talking about so far, your home, your car,

609
00:32:47,800 --> 00:32:52,040
Speaker 3: your trip, all of those are risks in which the

610
00:32:52,120 --> 00:32:55,640
Speaker 3: amount at stake tends to increase with your income. So

611
00:32:55,680 --> 00:32:58,440
Speaker 3: people who have more income have you know, tend to

612
00:32:58,560 --> 00:33:02,280
Speaker 3: buy more expensive cars or more expensive homes, or go

613
00:33:02,360 --> 00:33:05,120
Speaker 3: on more expensive trips, or if they want life insurance,

614
00:33:05,480 --> 00:33:08,880
Speaker 3: need to ensure you know, a larger salary to you know,

615
00:33:08,920 --> 00:33:11,880
Speaker 3: to cover their dependence in the event of their demise,

616
00:33:12,480 --> 00:33:15,680
Speaker 3: so that there's a natural, built in process by which

617
00:33:15,960 --> 00:33:19,120
Speaker 3: you know, the insurance becomes more expensive as your income

618
00:33:19,520 --> 00:33:22,080
Speaker 3: goes up, because the item that you're trying to ensure

619
00:33:22,160 --> 00:33:25,920
Speaker 3: is becoming more costly as your income goes up. But

620
00:33:26,080 --> 00:33:29,200
Speaker 3: health is the exception to that, right, So you know,

621
00:33:29,680 --> 00:33:34,080
Speaker 3: no matter your income, medical expenses, you know, the cost

622
00:33:34,200 --> 00:33:37,800
Speaker 3: of treating a severe illness or roughly the same. In fact,

623
00:33:38,080 --> 00:33:41,160
Speaker 3: there's also a lot of evidence that people of higher

624
00:33:41,240 --> 00:33:44,520
Speaker 3: income are in better health. So if anything, it goes

625
00:33:44,600 --> 00:33:47,360
Speaker 3: the wrong way that it's lower income people who have

626
00:33:47,520 --> 00:33:50,959
Speaker 3: higher expected health expenditures. They certainly don't have lower ones.

627
00:33:51,400 --> 00:33:54,440
Speaker 3: And so that is one of the reasons why you know,

628
00:33:54,480 --> 00:33:57,480
Speaker 3: as an economist, I don't understand what it means to

629
00:33:57,520 --> 00:34:01,040
Speaker 3: say I can't afford life insurance rest a short. As

630
00:34:01,040 --> 00:34:05,640
Speaker 3: a human being, I understand what people mean. But you know, conceptually,

631
00:34:06,080 --> 00:34:08,799
Speaker 3: you know you're you're getting some income and there's some

632
00:34:08,920 --> 00:34:10,920
Speaker 3: risk you're going to lose that income, so you spend

633
00:34:10,920 --> 00:34:13,799
Speaker 3: some small proportion of that income to ensure that risk.

634
00:34:14,120 --> 00:34:17,359
Speaker 3: But you can literally not be able to afford your

635
00:34:17,360 --> 00:34:20,719
Speaker 3: health care or your health insurance if you know the

636
00:34:22,000 --> 00:34:24,920
Speaker 3: expected risk you're trying to ensure or just is just

637
00:34:25,120 --> 00:34:28,400
Speaker 3: so large relative to your income you know, think about

638
00:34:29,320 --> 00:34:33,799
Speaker 3: if you end up with you know, catastrophic cancer and

639
00:34:34,000 --> 00:34:37,120
Speaker 3: late stage cancer and catastrophic oncology expenses, that can be

640
00:34:37,200 --> 00:34:41,160
Speaker 3: hundreds of thousands of dollars. Right. So in that sense,

641
00:34:41,280 --> 00:34:43,120
Speaker 3: I think one of the things we spend some time

642
00:34:43,120 --> 00:34:44,799
Speaker 3: talking about the book is this is this is an

643
00:34:44,800 --> 00:34:48,680
Speaker 3: example of combined with the selection problem, reason you may

644
00:34:48,680 --> 00:34:53,320
Speaker 3: get government intervention in these markets. Now, the particular health

645
00:34:53,400 --> 00:34:59,200
Speaker 3: sharing policies you asked about, those are designed, as you said,

646
00:35:00,239 --> 00:35:03,880
Speaker 3: to avoid the heavy regulation that you know comes up

647
00:35:03,880 --> 00:35:07,520
Speaker 3: in many insurance markets, which can feel a La antonin Scalia,

648
00:35:07,960 --> 00:35:13,120
Speaker 3: annoying and intrusive. Often those regulations that are motivated precisely

649
00:35:13,480 --> 00:35:16,200
Speaker 3: for trying to make to deal with the selection problem.

650
00:35:16,200 --> 00:35:19,920
Speaker 3: That doesn't mean they always deal with it well, but

651
00:35:20,000 --> 00:35:22,080
Speaker 3: that's part of the point. So I guess the question

652
00:35:23,000 --> 00:35:26,600
Speaker 3: about your health sharing policy is if you've been able

653
00:35:26,640 --> 00:35:30,560
Speaker 3: to create a pool of people who are all plausibly

654
00:35:30,600 --> 00:35:33,120
Speaker 3: in the same boat health wise and pool your risk,

655
00:35:33,920 --> 00:35:37,560
Speaker 3: that's terrific, assuming as I'm guessing you guys are relatively

656
00:35:37,560 --> 00:35:41,040
Speaker 3: young and relatively healthy. If what you've done is by

657
00:35:41,080 --> 00:35:43,440
Speaker 3: a policy that isn't going to pay much in the

658
00:35:43,480 --> 00:35:46,760
Speaker 3: event that you get sick because it has very low

659
00:35:47,000 --> 00:35:50,480
Speaker 3: maximum payouts or something. Then I'm sorry to say, you know,

660
00:35:50,520 --> 00:35:53,640
Speaker 3: you haven't really solved the problem because you haven't really

661
00:35:53,680 --> 00:35:55,520
Speaker 3: bought insurance. So I would have to know more about

662
00:35:55,520 --> 00:35:58,200
Speaker 3: your particular policy to be able to comment on.

663
00:35:58,239 --> 00:36:00,560
Speaker 1: That makes me think about kind of what Well you

664
00:36:00,600 --> 00:36:03,480
Speaker 1: talk about pet insurance and there's one pet insurance product

665
00:36:03,760 --> 00:36:06,360
Speaker 1: for an older dog that you say, it's like, I

666
00:36:06,440 --> 00:36:09,000
Speaker 1: think it covers up to fifteen thousand dollars out of pocket,

667
00:36:09,040 --> 00:36:11,319
Speaker 1: but the premiums are like eighty five hundred dollars a year,

668
00:36:11,360 --> 00:36:13,880
Speaker 1: So really that it's not much insurance covers.

669
00:36:14,000 --> 00:36:16,880
Speaker 3: Oh yeah, no, it's worse than that. The fine print

670
00:36:16,920 --> 00:36:19,040
Speaker 3: on that is like it cover, Yeah, the premiums are

671
00:36:19,080 --> 00:36:21,600
Speaker 3: something like seventy five hundred dollars a year, but you

672
00:36:21,680 --> 00:36:24,120
Speaker 3: have to pay twenty percent of expenses out of pocket

673
00:36:24,239 --> 00:36:26,720
Speaker 3: and their exclusions for this, that and the other thing.

674
00:36:26,800 --> 00:36:28,200
Speaker 1: And so basically becomes worthless.

675
00:36:28,280 --> 00:36:31,760
Speaker 3: Yes, So that's an example of where you probably shouldn't

676
00:36:31,760 --> 00:36:36,440
Speaker 3: buy the policy because and why is it so expensive? Again,

677
00:36:37,360 --> 00:36:41,160
Speaker 3: some of the reason is this selection or private information.

678
00:36:41,560 --> 00:36:43,680
Speaker 3: And here we give another example in the book about

679
00:36:43,760 --> 00:36:47,680
Speaker 3: exactly what form that you know, selection takes the example

680
00:36:47,680 --> 00:36:50,840
Speaker 3: of my co author lron In av who has a

681
00:36:50,920 --> 00:36:54,400
Speaker 3: dog and did not buy pet insurance in part because

682
00:36:54,440 --> 00:36:56,600
Speaker 3: he looked at the prices you know, that's what we do,

683
00:36:56,680 --> 00:36:59,920
Speaker 3: and saw that, you know, this was ridiculous, but also

684
00:37:00,120 --> 00:37:03,200
Speaker 3: because relatedly he knew that, you know, he loved his dog,

685
00:37:03,320 --> 00:37:06,239
Speaker 3: but if something happened to Shoko, he would want, you know,

686
00:37:06,320 --> 00:37:09,560
Speaker 3: to put him out of his misery and and move

687
00:37:09,600 --> 00:37:12,600
Speaker 3: on from there. What he didn't know until Shoko got

688
00:37:12,640 --> 00:37:16,240
Speaker 3: sick is that his wife felt very differently. His wife felt,

689
00:37:16,280 --> 00:37:19,359
Speaker 3: you know, no expense should be spared, no effort left

690
00:37:19,400 --> 00:37:22,759
Speaker 3: undone to try to save Shoko. And he said, he

691
00:37:22,760 --> 00:37:24,120
Speaker 3: talked to her, he said, come on, so what's your

692
00:37:24,320 --> 00:37:26,799
Speaker 3: what's the maximum you're willing to spend and she said

693
00:37:27,120 --> 00:37:29,960
Speaker 3: there is no maximum, and you know, into an economist,

694
00:37:30,040 --> 00:37:34,320
Speaker 3: that's just like nuts. But anyway, unfortunately Shoko did get better.

695
00:37:35,080 --> 00:37:38,360
Speaker 1: Okay, then yes, so then we'ren.

696
00:37:38,239 --> 00:37:41,840
Speaker 3: Tried to buy pet insurance for Showco and he couldn't

697
00:37:41,880 --> 00:37:44,520
Speaker 3: because now Shoko has a pre existing condition. It's kind

698
00:37:44,520 --> 00:37:47,120
Speaker 3: of like my husband with his you know, broken down

699
00:37:47,160 --> 00:37:48,640
Speaker 3: car by the side of the road. Now that you

700
00:37:48,719 --> 00:37:51,000
Speaker 3: know your dog tends to get sick. It's hard to

701
00:37:51,160 --> 00:37:55,200
Speaker 3: quote unquote ensure that. But more to the point, should

702
00:37:55,200 --> 00:37:58,320
Speaker 3: they ever get another pet, he will certainly buy insurance

703
00:37:58,400 --> 00:38:01,239
Speaker 3: because he now knows what's his prime information. It's not

704
00:38:01,360 --> 00:38:03,880
Speaker 3: that this pet that he hasn't yet bought, he knows is,

705
00:38:04,280 --> 00:38:07,479
Speaker 3: you know, sickly. It's that he's learned, perhaps the hard way,

706
00:38:07,719 --> 00:38:10,680
Speaker 3: that he's married to someone who is willing to, you know,

707
00:38:10,760 --> 00:38:13,200
Speaker 3: spend anything when a pet gets sick. And that's the

708
00:38:13,280 --> 00:38:15,880
Speaker 3: kind of private information that's going to be very hard

709
00:38:16,280 --> 00:38:20,440
Speaker 3: for an insurer, no matter how sophisticated their actuarial algorithms

710
00:38:20,440 --> 00:38:22,799
Speaker 3: and data collection are, to be able to figure out

711
00:38:22,840 --> 00:38:23,480
Speaker 3: about someone.

712
00:38:23,840 --> 00:38:27,000
Speaker 2: Well, what's crazy, too, is as individuals, I think sometimes

713
00:38:27,040 --> 00:38:30,560
Speaker 2: we don't even have the right information. As individuals. Sometimes

714
00:38:30,600 --> 00:38:33,400
Speaker 2: we might even be blind to what we would be

715
00:38:33,440 --> 00:38:35,160
Speaker 2: willing to do in that situation.

716
00:38:34,760 --> 00:38:36,080
Speaker 1: Because how much we'd be willing to spend.

717
00:38:36,160 --> 00:38:37,839
Speaker 2: Yeah, yeah, because I mean there might be individuals who

718
00:38:37,880 --> 00:38:39,800
Speaker 2: think that, oh, well, I know what we're going to

719
00:38:39,880 --> 00:38:42,359
Speaker 2: do in this instance. But I think you might even

720
00:38:42,400 --> 00:38:45,279
Speaker 2: be surprised. When you are put in these kind of situations,

721
00:38:45,280 --> 00:38:46,560
Speaker 2: it changes you to a certainty.

722
00:38:46,640 --> 00:38:51,160
Speaker 3: So I plead completely guilty to that. Okay, I confess

723
00:38:51,440 --> 00:38:55,719
Speaker 3: to having spent one hundred and fifty dollars on heroic

724
00:38:55,920 --> 00:38:58,640
Speaker 3: measures for what turned out to be a dead hamster.

725
00:39:00,080 --> 00:39:02,640
Speaker 3: You know, I have a nine year old daughter in tiers,

726
00:39:03,760 --> 00:39:06,480
Speaker 3: you know, and apparently it took one hundred and fifty

727
00:39:06,520 --> 00:39:09,879
Speaker 3: dollars for them to ascertain that the hamster was indeed dead.

728
00:39:10,680 --> 00:39:12,399
Speaker 3: But you know, what are you going to do? Right?

729
00:39:12,400 --> 00:39:16,000
Speaker 3: And in retrospect, it was idiotic. It was a total

730
00:39:16,040 --> 00:39:20,080
Speaker 3: waste of money. I think she would now even recognize that.

731
00:39:20,080 --> 00:39:21,800
Speaker 3: But in the heat of the moment, we're not sure

732
00:39:21,960 --> 00:39:25,200
Speaker 3: what's going on with Jimmy, and she's sobbing, and you know,

733
00:39:25,239 --> 00:39:27,759
Speaker 3: it really was quite I mean, even the people at

734
00:39:27,760 --> 00:39:30,560
Speaker 3: the pet eer where tears were trickling down their face

735
00:39:30,600 --> 00:39:33,080
Speaker 3: because you know, poor Jimmy and poor daughter, you know.

736
00:39:33,160 --> 00:39:33,959
Speaker 2: Nine year old book.

737
00:39:34,040 --> 00:39:36,640
Speaker 3: But yeah, so you don't ever really know what you're

738
00:39:36,680 --> 00:39:38,120
Speaker 3: going to do till you're faced with it.

739
00:39:38,640 --> 00:39:40,920
Speaker 2: But generally speaking, I mean, we can look at the

740
00:39:41,000 --> 00:39:43,040
Speaker 2: data and there are some policies. Let me, so you've

741
00:39:43,040 --> 00:39:45,840
Speaker 2: pointed out that pet insurance, generally speaking, is not a

742
00:39:45,880 --> 00:39:49,120
Speaker 2: good policy for most folks to purchase. But when we

743
00:39:49,120 --> 00:39:50,640
Speaker 2: come back from the break, I would love to hear

744
00:39:50,920 --> 00:39:52,279
Speaker 2: we're going to give you the break to think about it.

745
00:39:52,280 --> 00:39:54,239
Speaker 2: But some of the other policies, some of the other

746
00:39:54,239 --> 00:39:57,160
Speaker 2: insurance products out there that you might tell folks to

747
00:39:57,160 --> 00:39:59,000
Speaker 2: think twice about, that might that we might even steer

748
00:39:59,040 --> 00:40:01,719
Speaker 2: folks away from. We'll get to that, as well as

749
00:40:01,719 --> 00:40:03,160
Speaker 2: some other questions right after this.

750
00:40:12,719 --> 00:40:14,640
Speaker 1: All right, we're back from the break, still talking with

751
00:40:14,880 --> 00:40:20,240
Speaker 1: Amy Finkelstein about insurance. It's a funky thing, and different

752
00:40:20,280 --> 00:40:22,719
Speaker 1: insurance products are funkier than other. Some are more straightforward,

753
00:40:22,880 --> 00:40:26,000
Speaker 1: which makes me think Amy that sometimes the more complexity

754
00:40:26,000 --> 00:40:28,600
Speaker 1: that's thrown into an insurance product, the harder it is

755
00:40:28,600 --> 00:40:31,880
Speaker 1: for the consumer to understand, and oftentimes the more expensive

756
00:40:31,960 --> 00:40:35,520
Speaker 1: it gets. So Matt before the break said, what insurance

757
00:40:35,520 --> 00:40:39,000
Speaker 1: products would you may be curious steer clear of. Something

758
00:40:39,000 --> 00:40:42,600
Speaker 1: that we talk about is like term life insurance, great option,

759
00:40:43,200 --> 00:40:46,000
Speaker 1: and yet some of the other funkier versions of life

760
00:40:46,080 --> 00:40:49,319
Speaker 1: insurance can cost ten to fifteen times as much and

761
00:40:49,560 --> 00:40:52,840
Speaker 1: they're not necessarily offering you enough in return. So I

762
00:40:52,880 --> 00:40:55,400
Speaker 1: don't know what are your thoughts on those other kinds

763
00:40:55,400 --> 00:40:57,600
Speaker 1: of life insurance and just maybe other insurance products in

764
00:40:57,640 --> 00:40:59,799
Speaker 1: general that you would steer people clear of.

765
00:41:00,760 --> 00:41:03,160
Speaker 3: Yeah, so just to be clear, you know, before the

766
00:41:03,239 --> 00:41:05,799
Speaker 3: break we were talking about how pet insurance can be,

767
00:41:06,120 --> 00:41:09,080
Speaker 3: you know, very expensive relative to what you can potentially

768
00:41:09,120 --> 00:41:12,080
Speaker 3: get for it. I would stop short of saying therefore

769
00:41:12,120 --> 00:41:14,200
Speaker 3: you shouldn't buy it. I would more just say you

770
00:41:14,200 --> 00:41:17,000
Speaker 3: should think carefully before you buy it about you know,

771
00:41:17,280 --> 00:41:19,400
Speaker 3: how much could it pay out, what's the chance of

772
00:41:19,400 --> 00:41:21,759
Speaker 3: that event occurring, which in part depends on what you

773
00:41:21,800 --> 00:41:24,960
Speaker 3: know about your patent and also what you know about yourself.

774
00:41:25,600 --> 00:41:29,120
Speaker 3: I think the kinds of insurance in general that should

775
00:41:29,200 --> 00:41:32,319
Speaker 3: raise red flags even before you get to doing those

776
00:41:32,360 --> 00:41:36,279
Speaker 3: calculations are the policies that seem to have caps or

777
00:41:36,360 --> 00:41:40,000
Speaker 3: limits on how much they'll pay out. Because remember, the

778
00:41:40,080 --> 00:41:43,640
Speaker 3: point of insurance, really, the real value is protecting against

779
00:41:43,640 --> 00:41:47,920
Speaker 3: the big risks, not the small risks. So's it's backwards

780
00:41:48,239 --> 00:41:52,040
Speaker 3: to have, you know, insurance that covers small things but

781
00:41:52,120 --> 00:41:55,680
Speaker 3: not big things. And I think a classic example of

782
00:41:55,719 --> 00:41:59,040
Speaker 3: the type of insurance that is called insurance but isn't

783
00:41:59,080 --> 00:42:01,239
Speaker 3: really and that you want to be careful of is

784
00:42:01,680 --> 00:42:04,920
Speaker 3: dental insurance. So I don't know if you guys have

785
00:42:05,000 --> 00:42:07,560
Speaker 3: ever I hope you haven't ever had major dental issues,

786
00:42:07,600 --> 00:42:12,000
Speaker 3: but if you have, excellent but if or when you do,

787
00:42:12,440 --> 00:42:15,880
Speaker 3: you will discover that your so called dental insurance, I

788
00:42:15,880 --> 00:42:18,960
Speaker 3: would wager, is nothing more than a bit of a

789
00:42:19,040 --> 00:42:23,680
Speaker 3: pre payment plan for your routine cleanings. You know, my

790
00:42:24,000 --> 00:42:27,600
Speaker 3: plan pays for you know, cleanings every six months and

791
00:42:27,960 --> 00:42:31,040
Speaker 3: sort of minor stuff like cavities. But if you ever

792
00:42:31,160 --> 00:42:35,240
Speaker 3: need a root canal, an expensive implant, some major dental work,

793
00:42:35,520 --> 00:42:39,800
Speaker 3: you will quickly hit the cap on your insurance coverage.

794
00:42:40,000 --> 00:42:42,359
Speaker 3: And our co author Ray Fisman in the book talks

795
00:42:42,360 --> 00:42:45,760
Speaker 3: about his own experiences with this, which also reveal why

796
00:42:45,800 --> 00:42:48,759
Speaker 3: this dental insurance is so crummy and so not what

797
00:42:48,880 --> 00:42:52,560
Speaker 3: an insurance product is supposed to be. And that's because

798
00:42:53,840 --> 00:42:57,440
Speaker 3: dental care, for the most part, is timable. So if

799
00:42:57,440 --> 00:42:59,600
Speaker 3: you need a root canal or an implant, you don't

800
00:42:59,640 --> 00:43:01,440
Speaker 3: need it. It's not like you know, when you're hit

801
00:43:01,440 --> 00:43:03,239
Speaker 3: by a car, you don't need the care immediately. You

802
00:43:03,280 --> 00:43:06,680
Speaker 3: need it sometime soon. And so go back to one

803
00:43:06,680 --> 00:43:09,200
Speaker 3: of the ways that insurers try to prevent these selection

804
00:43:09,320 --> 00:43:13,319
Speaker 3: problems through so called waiting periods. Well, you know, with

805
00:43:13,440 --> 00:43:16,440
Speaker 3: most health insurance and dental insurance, there's an open enrollment

806
00:43:16,480 --> 00:43:18,440
Speaker 3: in period in the fall where you can change your

807
00:43:18,480 --> 00:43:21,560
Speaker 3: plan's that's like a one year waiting period, but you

808
00:43:21,600 --> 00:43:25,239
Speaker 3: can wait. Dental care is timeable. And so what he

809
00:43:25,280 --> 00:43:28,719
Speaker 3: did when he discovered he needed expensive implants is wait

810
00:43:28,840 --> 00:43:31,600
Speaker 3: till you know the open enrollment to try and you know,

811
00:43:31,760 --> 00:43:35,520
Speaker 3: increases dental insurance. And guess what he found. Dental insurance

812
00:43:35,520 --> 00:43:38,600
Speaker 3: doesn't cover implants precisely because many people will do that.

813
00:43:38,640 --> 00:43:41,440
Speaker 3: And there's actually, you know, rigorous research on this that

814
00:43:41,480 --> 00:43:43,640
Speaker 3: we talk about in the book that an economist named

815
00:43:43,640 --> 00:43:47,000
Speaker 3: Marika Cabral has done showing what happens when you, you know,

816
00:43:47,040 --> 00:43:50,080
Speaker 3: make dental insurance more generous, you know, raise the caps

817
00:43:50,080 --> 00:43:52,080
Speaker 3: on what will be covered, you get exactly the kind

818
00:43:52,080 --> 00:43:54,880
Speaker 3: of selection problem those caps are designed to avoid.

819
00:43:55,560 --> 00:43:59,800
Speaker 2: Okay, So is that the purpose essentially behind open enrollment periods,

820
00:43:59,840 --> 00:44:03,920
Speaker 2: that is to essentially regulate or is it for insurers

821
00:44:03,960 --> 00:44:06,120
Speaker 2: to try to regulate this selection problem?

822
00:44:06,440 --> 00:44:09,440
Speaker 3: Yes, So we talked early in our conversation about the

823
00:44:09,480 --> 00:44:13,040
Speaker 3: most natural response to dealing with this selection problem is

824
00:44:13,080 --> 00:44:16,239
Speaker 3: to collect more information on the customer. The other thing

825
00:44:16,320 --> 00:44:19,480
Speaker 3: insurance companies do, and this can explain a lot of

826
00:44:19,560 --> 00:44:24,319
Speaker 3: otherwise puzzling or even maddening features of insurance products is

827
00:44:24,360 --> 00:44:28,960
Speaker 3: they try to design products to attract the types of

828
00:44:28,960 --> 00:44:32,000
Speaker 3: customers they want, and not attract the types of customers

829
00:44:32,040 --> 00:44:36,120
Speaker 3: they don't, and waiting periods are a classic example of this. Right,

830
00:44:36,200 --> 00:44:38,480
Speaker 3: a waiting period is a way to make sure. You know,

831
00:44:38,560 --> 00:44:40,799
Speaker 3: my husband doesn't wait till his car breaks down to

832
00:44:40,840 --> 00:44:44,640
Speaker 3: buy deluxe towing insurance. Rey Fisman doesn't wait till he

833
00:44:44,719 --> 00:44:48,960
Speaker 3: needs implants to buy better dental insurance. Annual enrollment periods

834
00:44:48,960 --> 00:44:50,759
Speaker 3: are a form of a waiting period. They're saying you

835
00:44:50,800 --> 00:44:53,200
Speaker 3: can't change your policy within the year unless you have

836
00:44:53,280 --> 00:44:56,840
Speaker 3: a so called qualifying event, something that doesn't look like

837
00:44:56,880 --> 00:44:59,480
Speaker 3: I got sick, that's why I want to increase my insurance.

838
00:44:59,560 --> 00:45:01,600
Speaker 3: But I had child, or I got married, or I

839
00:45:01,719 --> 00:45:05,280
Speaker 3: changed jobs. So we talk in the book about various

840
00:45:05,360 --> 00:45:09,759
Speaker 3: ways that insurance companies can design products to try to

841
00:45:09,800 --> 00:45:13,359
Speaker 3: make them less appealing to the high cost customers. One

842
00:45:13,400 --> 00:45:15,920
Speaker 3: of my favorite examples in the book is an example

843
00:45:15,920 --> 00:45:19,240
Speaker 3: of the opposite of insurers trying to design the insurance

844
00:45:19,239 --> 00:45:22,560
Speaker 3: to appeal to the customers they do want, and the

845
00:45:22,600 --> 00:45:27,480
Speaker 3: example is from two health researchers, Cooper and Trevetti who

846
00:45:27,920 --> 00:45:29,719
Speaker 3: tackle the question of I don't know if you've ever

847
00:45:29,800 --> 00:45:33,400
Speaker 3: noticed this, but some health insurance plans will say that

848
00:45:33,440 --> 00:45:37,480
Speaker 3: with our health insurance plan comes a discounted premium on

849
00:45:37,520 --> 00:45:41,359
Speaker 3: your gym membership. So why do they do that?

850
00:45:42,200 --> 00:45:44,240
Speaker 2: I think is it because it makes you healthy?

851
00:45:44,440 --> 00:45:47,800
Speaker 1: Surveys right, that's there.

852
00:45:47,680 --> 00:45:50,960
Speaker 3: You go, that's the natural response that you know, insurre

853
00:45:51,160 --> 00:45:54,160
Speaker 3: I mean and customer incentives are aligned. They both wanted,

854
00:45:54,360 --> 00:45:57,120
Speaker 3: you know, the customer to stay healthy separately. There's some

855
00:45:57,160 --> 00:46:00,600
Speaker 3: excellent randomized trial work showing that. To break it to

856
00:46:00,800 --> 00:46:03,600
Speaker 3: you know, firms when they offer workplace wellness plans, it's

857
00:46:03,640 --> 00:46:06,880
Speaker 3: not to make it's not because it makes their employees healthier.

858
00:46:07,200 --> 00:46:10,439
Speaker 3: But what workplace wellness plans do for employers and what

859
00:46:10,840 --> 00:46:15,600
Speaker 3: discounted gym memberships do for health insurance sellers, is that

860
00:46:15,600 --> 00:46:19,640
Speaker 3: they tend to attract the type of customers for whom

861
00:46:19,680 --> 00:46:23,160
Speaker 3: this would be appealing, and those tend to be healthier,

862
00:46:23,560 --> 00:46:28,719
Speaker 3: lower cost customers or healthier lower cost employees. So you know,

863
00:46:28,760 --> 00:46:33,440
Speaker 3: with the example of health insurance products that bundle with

864
00:46:33,520 --> 00:46:36,880
Speaker 3: it a discount on a gym membership, it's not because

865
00:46:36,920 --> 00:46:40,160
Speaker 3: going to the gym is going to make you healthier

866
00:46:40,200 --> 00:46:42,120
Speaker 3: in a way that will show up noticeably in your

867
00:46:42,160 --> 00:46:47,680
Speaker 3: medical expenses. It's because you know, it's only the relatively healthy,

868
00:46:47,960 --> 00:46:52,000
Speaker 3: relatively you know, not sick customers who can at least

869
00:46:52,040 --> 00:46:55,319
Speaker 3: delude themselves into thinking that they're going to use that

870
00:46:55,440 --> 00:46:57,480
Speaker 3: gym membership and go to the gym a lot. If

871
00:46:57,480 --> 00:47:01,480
Speaker 3: you're already suffering from a number of build dellitating issues

872
00:47:01,480 --> 00:47:04,719
Speaker 3: and illnesses, that gym membership isn't that appealing because.

873
00:47:04,520 --> 00:47:06,840
Speaker 1: You know you're not attractive at whereas you.

874
00:47:06,840 --> 00:47:09,800
Speaker 3: Know, the healthy among us such as my fortunately myself,

875
00:47:09,880 --> 00:47:12,520
Speaker 3: can at least delude ourselves into thinking, oh, yeah, I

876
00:47:12,560 --> 00:47:16,000
Speaker 3: bet I'd go to that gym. Even often we may

877
00:47:16,080 --> 00:47:17,879
Speaker 3: not end up doing so well.

878
00:47:17,920 --> 00:47:19,520
Speaker 1: And I think a couple of your examples that you

879
00:47:19,600 --> 00:47:21,680
Speaker 1: just just gave with the dental insurance and with the

880
00:47:21,680 --> 00:47:24,560
Speaker 1: pen insurance, it's a good reminder to look at the details,

881
00:47:24,560 --> 00:47:27,000
Speaker 1: the specifics. What does this insurance policy pay out on?

882
00:47:27,200 --> 00:47:30,040
Speaker 1: What am I required? Not just deductible wise, but like

883
00:47:30,080 --> 00:47:31,719
Speaker 1: what are the limits, all that the caps, all those

884
00:47:31,760 --> 00:47:33,239
Speaker 1: kind of things are really important to think about it

885
00:47:33,239 --> 00:47:35,640
Speaker 1: ahead of time. Last question for you, Amy, if you

886
00:47:35,680 --> 00:47:38,040
Speaker 1: were in charge, if you were like made the insurance

887
00:47:38,120 --> 00:47:40,839
Speaker 1: czar of America something like that, you could make any

888
00:47:40,960 --> 00:47:44,520
Speaker 1: changes or rules you wanted. You are all powerful. How

889
00:47:44,560 --> 00:47:47,280
Speaker 1: would you make insurance more effective for people across the country.

890
00:47:48,120 --> 00:47:51,279
Speaker 3: Okay, that is a super hard question, and I'm going

891
00:47:51,360 --> 00:47:56,040
Speaker 3: to give you a fairly unsatisfying cliffhanger of an answer,

892
00:47:56,200 --> 00:47:58,719
Speaker 3: which is to say that, you know, our book is

893
00:47:58,760 --> 00:48:04,920
Speaker 3: about insurance markets large, pet, auto, dental, life, health, et cetera.

894
00:48:05,800 --> 00:48:08,560
Speaker 3: But my own and my co author, Lauren in Know's

895
00:48:08,719 --> 00:48:12,640
Speaker 3: particular area of research and specialty is health insurance. So

896
00:48:12,680 --> 00:48:16,200
Speaker 3: we get asked that question all the time about if

897
00:48:16,239 --> 00:48:20,120
Speaker 3: you were, you know, czar of the world, what would

898
00:48:20,160 --> 00:48:23,520
Speaker 3: you do to fix US health insurance? And for a

899
00:48:23,560 --> 00:48:27,280
Speaker 3: long time, our answer was that's a really hard question.

900
00:48:27,360 --> 00:48:30,120
Speaker 3: We don't know the answer, That's why I study this.

901
00:48:31,160 --> 00:48:33,520
Speaker 3: But at some point it became embarrassing that we didn't

902
00:48:33,560 --> 00:48:35,960
Speaker 3: at least have something to say about it, and so

903
00:48:36,920 --> 00:48:39,720
Speaker 3: we actually spent the last year and a half writing

904
00:48:39,800 --> 00:48:44,120
Speaker 3: a separate book that is coming out this summer called

905
00:48:44,200 --> 00:48:48,600
Speaker 3: We've Got You Covered, Rebooting American Healthcare. That is the

906
00:48:48,640 --> 00:48:52,760
Speaker 3: answer to what we would do to fix US health.

907
00:48:52,560 --> 00:49:01,719
Speaker 1: Insurance question is one of those solutions untangling healthcare from employment.

908
00:49:02,360 --> 00:49:04,920
Speaker 3: I'd go with yes, there is no. There is no.

909
00:49:05,760 --> 00:49:08,799
Speaker 3: The fact that health insurance in the US is so

910
00:49:08,920 --> 00:49:13,279
Speaker 3: tied to employment is a perverse accident of history. It

911
00:49:13,360 --> 00:49:15,759
Speaker 3: had to do with wage and price controls that came

912
00:49:15,800 --> 00:49:18,640
Speaker 3: in during World War Two, and one way around that

913
00:49:19,600 --> 00:49:23,280
Speaker 3: during because basically there were labor shortages and to control prices,

914
00:49:23,280 --> 00:49:26,719
Speaker 3: they put in wage wage ceilings, and one way to

915
00:49:26,800 --> 00:49:30,040
Speaker 3: attract employees without being able to offer them higher wages

916
00:49:30,080 --> 00:49:32,480
Speaker 3: was to offer them benefits like health warre benefits, and

917
00:49:32,480 --> 00:49:35,800
Speaker 3: that at some point got codified into a tax subsidy

918
00:49:35,800 --> 00:49:39,520
Speaker 3: to employer provided health insurance, which is fairly i'd say

919
00:49:39,600 --> 00:49:44,120
Speaker 3: uniformly reviled among by economists across the political spectrum. It's

920
00:49:44,120 --> 00:49:45,880
Speaker 3: one of the few things you can get economists to

921
00:49:45,920 --> 00:49:48,759
Speaker 3: agree on. There. There's only one hand. We're not two

922
00:49:48,800 --> 00:49:49,360
Speaker 3: handed on that.

923
00:49:51,000 --> 00:49:54,160
Speaker 2: We really do appreciate you talking to us about insurance

924
00:49:54,239 --> 00:49:57,200
Speaker 2: like truly risky business. It is the most fun that

925
00:49:57,239 --> 00:50:00,160
Speaker 2: you can have actually reading about insurance because you I'll

926
00:50:00,160 --> 00:50:04,640
Speaker 2: give some great stories just throughout history of different markets

927
00:50:04,640 --> 00:50:07,759
Speaker 2: and how they failed and how that goes into the

928
00:50:07,800 --> 00:50:11,080
Speaker 2: pricing of insurance. Lew that it asks, Yeah, but where

929
00:50:11,120 --> 00:50:13,000
Speaker 2: can folks find that book? Where can folks learn more

930
00:50:13,000 --> 00:50:15,000
Speaker 2: about what you are up to these days?

931
00:50:15,239 --> 00:50:19,839
Speaker 3: They can find it online at Amazon or any online book,

932
00:50:19,840 --> 00:50:23,760
Speaker 3: Burns and Nobles. It's called risky Business, Why insurance markets

933
00:50:23,800 --> 00:50:26,560
Speaker 3: fail and what to do about it? And certainly our

934
00:50:26,560 --> 00:50:30,400
Speaker 3: goal was to make it fun while but hopefully also

935
00:50:30,440 --> 00:50:32,400
Speaker 3: you learn something. I mean, those are my favorite books

936
00:50:32,400 --> 00:50:35,440
Speaker 3: to read where you're reading something that kind of reads

937
00:50:35,560 --> 00:50:38,520
Speaker 3: like fiction but it's actually nonfiction. I don't know if

938
00:50:38,520 --> 00:50:40,440
Speaker 3: we achieved that, but that was certainly our.

939
00:50:40,320 --> 00:50:43,279
Speaker 1: Goal, almost like the Malcolm Gladwell model, right, he's so

940
00:50:43,320 --> 00:50:45,959
Speaker 1: good at that. Absolutely rightly, Well, I think he achieved it. Amy,

941
00:50:45,960 --> 00:50:47,560
Speaker 1: Thank you again so much for joining us today. We

942
00:50:47,560 --> 00:50:48,239
Speaker 1: really appreciate it.

943
00:50:48,239 --> 00:50:49,759
Speaker 3: Thank you so much for having me well.

944
00:50:49,760 --> 00:50:52,839
Speaker 2: Amy, thanks again for speaking with us. All right, Joel

945
00:50:53,239 --> 00:50:54,760
Speaker 2: so spoken like a true economist.

946
00:50:54,840 --> 00:50:55,120
Speaker 3: Amy.

947
00:50:55,320 --> 00:50:57,120
Speaker 2: She was saying, like, on one hand, this, on the

948
00:50:57,160 --> 00:51:00,279
Speaker 2: other hand, not a nuance, Right, Well, there is, And

949
00:51:00,320 --> 00:51:01,799
Speaker 2: I guess I'll go ahead and give my my big

950
00:51:01,840 --> 00:51:03,880
Speaker 2: takeaway from this episode. We are trying to get her

951
00:51:04,000 --> 00:51:06,719
Speaker 2: to kind of out maybe some specific insurance products and

952
00:51:06,960 --> 00:51:11,040
Speaker 2: whether or not that we should completely avoid those. But

953
00:51:11,080 --> 00:51:13,200
Speaker 2: what it came down to, what Amy pointed us to

954
00:51:13,400 --> 00:51:15,000
Speaker 2: is essentially what we need to do is look at

955
00:51:15,000 --> 00:51:17,640
Speaker 2: the fine print and to determine for ourselves whether or

956
00:51:17,680 --> 00:51:20,400
Speaker 2: not any insurance product that's out there if it makes

957
00:51:20,440 --> 00:51:24,600
Speaker 2: sense given our financial situation. Given that's that select that

958
00:51:24,640 --> 00:51:28,520
Speaker 2: problem of selection, right, Like, we have the information that

959
00:51:28,760 --> 00:51:31,280
Speaker 2: we know is going to lead to us either using

960
00:51:31,320 --> 00:51:33,320
Speaker 2: insurance or not using insurance, and so we have to

961
00:51:33,360 --> 00:51:36,879
Speaker 2: make the best informed decisions based on what it is

962
00:51:36,920 --> 00:51:39,080
Speaker 2: that we know. But a part of that is, like

963
00:51:39,120 --> 00:51:42,200
Speaker 2: she said, looking at some of those maximums that insurance

964
00:51:42,280 --> 00:51:46,000
Speaker 2: companies are willing to pay on whatever issue it is

965
00:51:46,120 --> 00:51:48,000
Speaker 2: it is that come that comes up. And so just

966
00:51:48,120 --> 00:51:49,839
Speaker 2: like and you kind of hinted at this as well,

967
00:51:49,840 --> 00:51:52,000
Speaker 2: but making sure to read the fine print, make sure

968
00:51:52,000 --> 00:51:54,400
Speaker 2: you know what those maximums are, making sure that you

969
00:51:54,440 --> 00:51:56,120
Speaker 2: know what you're out of pocket maximums are.

970
00:51:56,080 --> 00:51:56,400
Speaker 3: Going to be.

971
00:51:56,600 --> 00:51:58,160
Speaker 1: But what are you actually getting, what are you actually

972
00:51:58,200 --> 00:52:00,160
Speaker 1: you're actually getting, and how much you're gonna have to

973
00:52:00,160 --> 00:52:02,319
Speaker 1: pay not just in premiums every year, but also when

974
00:52:02,360 --> 00:52:05,560
Speaker 1: that event does occur, because in that way, it is

975
00:52:05,680 --> 00:52:06,360
Speaker 1: a math problem.

976
00:52:06,400 --> 00:52:10,280
Speaker 2: Just like she said, with her homeowners insurance. Her husband

977
00:52:10,920 --> 00:52:12,960
Speaker 2: did the math and turns out they still came out

978
00:52:12,960 --> 00:52:15,200
Speaker 2: ahead even though they two years in a row they

979
00:52:15,280 --> 00:52:18,600
Speaker 2: hit their very expensive deductible. So that's my big takeaway.

980
00:52:18,640 --> 00:52:20,279
Speaker 1: Yeah, how about you, though, well you got Yeah, you've

981
00:52:20,280 --> 00:52:22,160
Speaker 1: got to be careful. I think when she said protecting

982
00:52:22,239 --> 00:52:24,839
Speaker 1: against the big risks, that's kind of what you need

983
00:52:24,880 --> 00:52:28,160
Speaker 1: to focus on. You can't de risk everything. And there

984
00:52:28,320 --> 00:52:31,480
Speaker 1: is kind of like an insurance product available for almost

985
00:52:31,480 --> 00:52:33,879
Speaker 1: everything under the sun. It feels like, whether you're buying

986
00:52:33,880 --> 00:52:37,160
Speaker 1: that laptop, you're getting extended warranty, whether you are buying

987
00:52:37,520 --> 00:52:41,160
Speaker 1: a flight, and American Airlines or Delta United says, hey,

988
00:52:41,160 --> 00:52:43,839
Speaker 1: guess what for ten percent of the cost of this

989
00:52:44,000 --> 00:52:46,400
Speaker 1: of this ticket, you too can insure. Again, it's not

990
00:52:46,480 --> 00:52:48,879
Speaker 1: making it on your flight. And there are all sorts

991
00:52:48,880 --> 00:52:51,440
Speaker 1: of insurance products that we can buy these days. But

992
00:52:51,880 --> 00:52:54,560
Speaker 1: if it's something you can stomach, then I think it's

993
00:52:54,600 --> 00:52:57,480
Speaker 1: something you should self insure on and that is going

994
00:52:57,520 --> 00:52:59,239
Speaker 1: to save you money in the long run. And so

995
00:52:59,280 --> 00:53:03,640
Speaker 1: some insurance products are better than others, and the big

996
00:53:03,680 --> 00:53:06,320
Speaker 1: things are Yeah, if you die prematurely, I think your home,

997
00:53:06,680 --> 00:53:08,120
Speaker 1: your car is even one of those things. But but

998
00:53:08,160 --> 00:53:09,920
Speaker 1: your car, depending on how old it is and what

999
00:53:09,960 --> 00:53:12,480
Speaker 1: sort of condition it's in. It's something you can self

1000
00:53:12,520 --> 00:53:15,640
Speaker 1: insuran more than maybe you currently are exactly I'm raising

1001
00:53:15,640 --> 00:53:17,839
Speaker 1: you're deductible and having more money in the bank. Yeah,

1002
00:53:17,880 --> 00:53:21,879
Speaker 1: and having reduced amounts of coverage which required their buyer's state.

1003
00:53:22,080 --> 00:53:23,759
Speaker 2: But uh yeah, nice man. All right, Let's get to

1004
00:53:23,760 --> 00:53:25,720
Speaker 2: the beer that you and I enjoyed during this episode.

1005
00:53:25,800 --> 00:53:28,840
Speaker 2: This was a kon Tiki and not surprisingly, this was

1006
00:53:28,880 --> 00:53:33,040
Speaker 2: a tropical triple ipa by Los Angeles ale Works. What

1007
00:53:33,040 --> 00:53:34,000
Speaker 2: were your thoughts on this one?

1008
00:53:34,120 --> 00:53:35,759
Speaker 1: Okay, So part of the reason I picked this beer

1009
00:53:35,840 --> 00:53:37,319
Speaker 1: up when I was in Los Angeles and I brought

1010
00:53:37,320 --> 00:53:40,040
Speaker 1: it back here for us to consume is because the

1011
00:53:40,120 --> 00:53:45,160
Speaker 1: Kantiki it was actually a ship made by a Norwegian

1012
00:53:45,440 --> 00:53:49,320
Speaker 1: and he crossed the entire ocean on this this tiki,

1013
00:53:49,520 --> 00:53:52,839
Speaker 1: this tiki ship essentially back in nineteen forty seven. His name,

1014
00:53:52,880 --> 00:53:55,440
Speaker 1: by the way, oh really thor haired All what like,

1015
00:53:56,120 --> 00:53:58,839
Speaker 1: what a super awesome Norwegian name. So, since I am

1016
00:53:58,840 --> 00:54:01,200
Speaker 1: more of Norwegian heritage and I actually went to the

1017
00:54:01,239 --> 00:54:03,279
Speaker 1: kon Tiki Museum when I was in Norway back in

1018
00:54:03,280 --> 00:54:04,879
Speaker 1: the day, I figured we had to give a beer

1019
00:54:04,880 --> 00:54:05,840
Speaker 1: a shot. Oh that's crazy.

1020
00:54:05,880 --> 00:54:07,920
Speaker 2: So, like you see kon tiki, and especially the way

1021
00:54:07,920 --> 00:54:09,520
Speaker 2: it's written on the label, it makes you think of

1022
00:54:09,600 --> 00:54:12,040
Speaker 2: like a tiki hut, I know. And so I guess

1023
00:54:12,040 --> 00:54:14,120
Speaker 2: I don't get this tiki just mean like it's made

1024
00:54:14,120 --> 00:54:16,080
Speaker 2: something made from like bamboo.

1025
00:54:15,640 --> 00:54:17,799
Speaker 1: I think. So that's my guess, okay, but.

1026
00:54:17,840 --> 00:54:21,319
Speaker 2: Which we normally associate with tropical climates like in Hawaii. Yeah,

1027
00:54:21,360 --> 00:54:24,320
Speaker 2: but I guess bamboo grows in Norway as well. I

1028
00:54:24,360 --> 00:54:25,080
Speaker 2: don't know. I think.

1029
00:54:25,160 --> 00:54:28,680
Speaker 1: So he went all the way across the ocean, all

1030
00:54:28,680 --> 00:54:33,000
Speaker 1: the way up to South America and on his homemade raft,

1031
00:54:33,120 --> 00:54:34,759
Speaker 1: and then I don't know if he made another one

1032
00:54:34,800 --> 00:54:36,640
Speaker 1: while he was down there. I forget. But this guy,

1033
00:54:36,920 --> 00:54:38,880
Speaker 1: they've got like koonyaks named after him and stuff now

1034
00:54:38,920 --> 00:54:42,200
Speaker 1: because he's like a folk legend and or nice. But

1035
00:54:42,560 --> 00:54:45,359
Speaker 1: this beer I thought was was great. It was really fruit.

1036
00:54:45,400 --> 00:54:47,920
Speaker 1: He had big mango vibes going on, and it was

1037
00:54:48,000 --> 00:54:50,080
Speaker 1: kind of sweet because it was a triple ipa as well.

1038
00:54:49,960 --> 00:54:52,239
Speaker 2: So yeah, mango. It definitely picked up on that, like

1039
00:54:52,320 --> 00:54:54,720
Speaker 2: passion fruits like different some of the different stone fruits

1040
00:54:54,760 --> 00:54:57,440
Speaker 2: out there, but it certainly had some of those tropical

1041
00:54:57,719 --> 00:55:00,920
Speaker 2: fruit flavors going on, and it may me feel like

1042
00:55:01,000 --> 00:55:04,000
Speaker 2: I was more hanging out in Hawaii than Norway myself,

1043
00:55:04,000 --> 00:55:06,480
Speaker 2: but talking to insurance while stipping from a coconut or

1044
00:55:06,480 --> 00:55:10,200
Speaker 2: something exactly. But yeah, so this again was Kantiki Triple

1045
00:55:10,239 --> 00:55:13,080
Speaker 2: I p A from la Al Works. But that's gonna

1046
00:55:13,080 --> 00:55:15,439
Speaker 2: be it for this episode. Listeners can find links up

1047
00:55:15,480 --> 00:55:17,120
Speaker 2: in our show notes up on the website at how

1048
00:55:17,120 --> 00:55:20,120
Speaker 2: tomoney dot com, including not only a link to Risky

1049
00:55:20,160 --> 00:55:22,799
Speaker 2: Business Amy's current book, but we'll we'll have a link

1050
00:55:22,880 --> 00:55:24,919
Speaker 2: up there as well for the one that is set

1051
00:55:24,960 --> 00:55:27,799
Speaker 2: to come out later this summer. Yeah, you can find

1052
00:55:27,800 --> 00:55:29,759
Speaker 2: that at how to money dot com. But Joel, that's

1053
00:55:29,760 --> 00:55:31,960
Speaker 2: gonna be a buddy until next time. Best Friends Out,

1054
00:55:32,080 --> 00:55:33,359
Speaker 2: Best Friends Out.