Journal
JOURNAL OF HEALTH ECONOMICS
Volume 56, Issue -, Pages 237-255Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/j.jhealeco.2017.05.004
Keywords
Health insurance; Adverse selection; Risk adjustment
Funding
- National Institute of Mental Health [R01 MH094290]
- Laura and John Arnold Foundation
- NIMH [T32 019733]
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Adverse selection in health insurance markets leads to two types of inefficiency. On the demand side, adverse selection leads to plan price distortions resulting in inefficient sorting of consumers across health plans. On the supply side, adverse selection creates incentives for plans to inefficiently distort benefits to attract profitable enrollees. Reinsurance, risk adjustment, and premium categories address these problems. Building on prior research on health plan payment system evaluation, we develop measures of the efficiency consequences of price and benefit distortions under a given payment system. Our measures are based on explicit economic models of insurer behavior under adverse selection, incorporate multiple features of plan payment systems, and can be calculated prior to observing actual insurer and consumer behavior. We illustrate the use of these measures with data from a simulated market for individual health insurance. (c) 2017 Elsevier B.V. All rights reserved.
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