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Unhealthy Insurance Markets: Search Frictions and the Cost and Quality of Health Insurance

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  • Randall D. Cebul
  • James B. Rebitzer
  • Lowell J. Taylor
  • Mark E. Votruba

Abstract

We analyze the effect of search frictions in the market for commercial health insurance. Frictions increase insurance premiums (enough to transfer 13.2 percent of consumer surplus from fully insured employer groups to insurers—approximately $34.4 billion in 1997); and increase insurance turnover (by 64 percent for the average policy). This rent transfer harms consumers and—when combined with heightened turnover—reduces incentives to invest in future health. We also find that a publicly financed insurance option can improve the efficiency of private insurance markets by reducing search friction induced distortions in pricing and marketing efforts. (JEL D83 G22, I18)

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 101 (2011)
Issue (Month): 5 (August)
Pages: 1842-71

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Handle: RePEc:aea:aecrev:v:101:y:2011:i:5:p:1842-71

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  1. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
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Citations

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Cited by:
  1. Keith M Marzilli Ericson & Amanda Starc, 2013. "How Product Standardization Affects Choice: Evidence from the Massachusetts Health Insurance Exchange," NBER Working Papers 19527, National Bureau of Economic Research, Inc.
  2. Pinar Karaca-Mandic & Roger Feldman & Peter Graven, 2013. "The Role of Agents and Brokers in the Market for Health Insurance," Working Papers 13-58, Center for Economic Studies, U.S. Census Bureau.
  3. Ziebarth, N.; & Schmitz, H.;, 2012. "In absolute or relative terms? How framing prices affects the consumer price sensitivity of health plan choice," Health, Econometrics and Data Group (HEDG) Working Papers 12/03, HEDG, c/o Department of Economics, University of York.
  4. Pinar Karaca-Mandic & Roger Feldman & Peter Graven, 2013. "The Role of Agents and Brokers in the Market for Health Insurance," NBER Working Papers 19342, National Bureau of Economic Research, Inc.
  5. Hendrik Schmitz & Nicolas R. Ziebarth, 2011. "In Absolute or Relative Terms? How Framing Prices Affects the Consumer Price Sensitivity of," Ruhr Economic Papers 0304, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  6. Rahkovsky, Ilya, 2010. "Exclusive contracts in health insurance," MPRA Paper 27473, University Library of Munich, Germany.
  7. Scott E. Harrington, 2011. "The Continuing Debate on Health Insurance Reform," NFI Policy Briefs 2011-PB-09, Indiana State University, Scott College of Business, Networks Financial Institute.
  8. Miller, Amalia R. & Eibner, Christine & Gresenz, Carole Roan, 2013. "Financing of employer sponsored health insurance plans before and after health reform: What consumers don’t know won’t hurt them?," International Review of Law and Economics, Elsevier, vol. 36(C), pages 36-47.
  9. Martin Dumav, 2013. "Health Insurance over the Life Cycle with Adverse Selection," 2013 Meeting Papers 1138, Society for Economic Dynamics.
  10. Mariana Carrera & Dana Goldman & Geoffrey Joyce, 2013. "Heterogeneity in Cost-Sharing and Cost-Sensitivity, and the Role of the Prescribing Physician," NBER Working Papers 19186, National Bureau of Economic Research, Inc.

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