Michael Steinberg

Rational Market Theory and Black Swans in Healthcare Reform

Correction: While black swans at the time they became uninsurable, they were for the most part not black swans at birth.

Rational Market Theory and Black Swans in Healthcare Reform

Black swan is appropriate because the insurer does not know which specific policy holder will turn bad, just like a bank does not which specific or how many borrowers will be affected by an outlier event. The difference is that despite actuarial and underwriting work in both scenarios, only health insurers can rescind policies; banks can only foreclose. In essence, private health insurers can pick off their black swans one by one. They are removing risk after the fact.

The uninsurable should be given credit for credible coverage by the insurance system as a whole. While not black swans at the time they become uninsurable, they were for the most part black swans at birth.