Imperfect risk adjustment, risk preferences, and sorting in competitive health insurance markets

The Economics of Costly Risk Sorting in Competitive Insurance Markets

In the last twenty years, state and federal policy makers have often been asked to restrict the criteria, or tests, on which insurance companies may base their risk categorization. Insurance companies have responded that it is fair and reasonable to charge groups with different probabilities of death or accident actuarially fair rates for each group. The companies argue that if they are not all...

Contending with Risk Selection in Competitive Health Insurance Markets

Social Insurance with Competitive Insurance Markets and Risk Misperception

Social Insurance with Competitive Insurance Markets and Risk Misperception* This paper considers an economy where individuals differ in productivity and in risk. Rochet (1991) has shown that when private insurance markets offer full coverage at fair rates, social insurance is desirable if and only if risk and productivity are negatively correlated. This condition is usually shown to be satisfie...

The Welfare Implications of Risk Adjustment in Imperfectly Competitive Markets

Risk adjustment is a common policy for mitigating the effects of adverse selection when government regulation limits insurer ability to rate consumers according to their expected risks. I study the social welfare implications of risk adjustment. I first show theoretically that risk adjustment may reduce social welfare because it can increase the expected risk of consumers who select into the in...

Are Health Insurance Markets Competitive?

The United States stands virtually alone among leading industrialized nations in its heavy and increasing reliance on the private insurance sector to intermediate health care for its residents. The assumption underlying this system is that fierce competition among private insurers yields more efficient outcomes, broadly writ (Alain C. Enthoven 1978). However, a comprehensive survey on the state...