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Health Insurance without Single Crossing: Why Healthy People have High Coverage

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  • Boone, J.
  • Schottmuller, C.

    (Tilburg University, Center for Economic Research)

Abstract

Standard insurance models predict that people with high (health) risks have high insurance coverage. It is empirically documented that people with high income have lower health risks and are better insured. We show that income differences between risk types lead to a violation of single crossing in the standard insurance model. If insurers have some market power, this can explain the empirically observed outcome. This observation has also policy implications: While risk adjustment is traditionally viewed as an intervention which increases efficiency and raises the utility of low health agents, we show that with a violation of single crossing a trade off between efficiency and solidarity emerges.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2011-095.

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Date of creation: 2011
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Handle: RePEc:dgr:kubcen:2011095

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Web page: http://center.uvt.nl

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Keywords: Health insurance; single crossing; risk adjustment;

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