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Insurance Search and Switching Behavior

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  • Bolhaar, Jonneke
  • Lindeboom, Maarten
  • van der Klaauw, Bas

Abstract

This paper looks into the search behavior of consumers in the market for health insurance contracts. We consider the recent health insurance reform in The Netherlands, where a private-public mix of insurance provision was replaced by a system based on managed competition. Although all insurers offer the same basic package (determined by the government), there is substantial premium dispersion. We develop a simple consumer search model containing the main features of the Dutch health insurance system. This model provides us with a number of hypotheses, which we test using data from the Dutch Health Care Consumer Panel. The data confirm the standard predictions on consumer choice (i.e. there is adverse selection and a lower premium increases coverage). We also find that consumers with lower search costs are more likely to receive a group contract offer. This generates a situation of price discrimination where individuals without group contracts and higher search costs pay higher premiums and buy lower insurance coverage.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7942.

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Date of creation: Aug 2010
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Handle: RePEc:cpr:ceprdp:7942

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Keywords: Adverse selection; Consumer search; Group contracts; Health insurance; Managed competition;

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References

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  1. Maarten C. W. Janssen & José Luis Moraga-González, 2004. "Strategic Pricing, Consumer Search and the Number of Firms," Review of Economic Studies, Wiley Blackwell, vol. 71(4), pages 1089-1118, October.
  2. Mark Pauly & Bradley Herring & David Song, 2006. "Information Technology and Consumer Search for Health Insurance," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 13(1), pages 45-63.
  3. Brown, Jeffrey, 2000. "Does the Internet Make Markets More Competitive? Evidence from the Life Insurance Industry," Working Paper Series rwp00-007, Harvard University, John F. Kennedy School of Government.
  4. Strombom, Bruce A. & Buchmueller, Thomas C. & Feldstein, Paul J., 2002. "Switching costs, price sensitivity and health plan choice," Journal of Health Economics, Elsevier, vol. 21(1), pages 89-116, January.
  5. Nicole Maestas & Mathis Schroeder & Dana Goldman, 2009. "Price Variation in Markets with Homogeneous Goods: The Case of Medigap," NBER Working Papers 14679, National Bureau of Economic Research, Inc.
  6. Janssen, Maarten C.W. & Moraga-Gonzalez, Jose Luis & Wildenbeest, Matthijs R., 2005. "Truly costly sequential search and oligopolistic pricing," International Journal of Industrial Organization, Elsevier, vol. 23(5-6), pages 451-466, June.
  7. Alan T. Sorensen, 2001. "An Empirical Model of Heterogeneous Consumer Search for Retail Prescription Drugs," NBER Working Papers 8548, National Bureau of Economic Research, Inc.
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Cited by:
  1. Martin Gaynor & Robert J. Town, 2011. "Competition in Health Care Markets," NBER Working Papers 17208, National Bureau of Economic Research, Inc.
  2. Martin Gaynor & Kate Ho & Robert Town, 2014. "The Industrial Organization of Health Care Markets," NBER Working Papers 19800, National Bureau of Economic Research, Inc.

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