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Minimum Coverage Regulation in Insurance Markets

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  • Daniel McFadden
  • Carlos Noton
  • Pau Olivella

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Abstract

We study the consequences of imposing a minimum coverage in an insurance market where enrollment is mandatory and agents have private information on their true risk type. If the regulation is not too stringent, the equilibrium is separating in which a single firm monopolizes the high risks while the rest attract the low risks, all at positive profits. Hence individuals, regardless of their type, "subsidize" insurers. If the legislation is sufficiently stringent the equilibrium is pooling, all firms just break even and low risks subsidize high risks. None of these results require resorting to non-Nash equilibrium notions.

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Bibliographic Info

Paper provided by Centro de Economía Aplicada, Universidad de Chile in its series Documentos de Trabajo with number 301.

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Date of creation: 2013
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Handle: RePEc:edj:ceauch:301

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  1. Pau Olivella & Marcos Vera-Hernandez, 2010. "How complex are the contracts offered by health plans?," SERIEs, Spanish Economic Association, vol. 1(3), pages 305-323, July.
  2. Neudeck, Werner & Podczeck, Konrad, 1996. "Adverse selection and regulation in health insurance markets," Journal of Health Economics, Elsevier, vol. 15(4), pages 387-408, August.
  3. Daniel McFadden & Carlos Noton & Pau Olivella, 2012. "Remedies for Sick Insurance," Working Papers 620, Barcelona Graduate School of Economics.
  4. Bertrand VILLENEUVE, 2003. "Concurrence et antisélection multidimensionnelle en assurance," Annales d'Economie et de Statistique, ENSAE, issue 69, pages 119-142.
  5. Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
  6. Mark Pauly, 2012. "Wussinomics: the state of competitive efficiency in private health insurance," International Journal of Health Care Finance and Economics, Springer, vol. 12(3), pages 235-245, September.
  7. Finkelstein, Amy, 2004. "Minimum standards, insurance regulation and adverse selection: evidence from the Medigap market," Journal of Public Economics, Elsevier, vol. 88(12), pages 2515-2547, December.
  8. William E. Encinosa & David E. M. Sappington, 1997. "Competition among Health Maintenance Organizations," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(1), pages 129-150, 03.
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Cited by:
  1. Daniel McFadden & Carlos Noton & Pau Olivella, 2013. "Remedies for Sick Insurance," Documentos de Trabajo 302, Centro de Economía Aplicada, Universidad de Chile.

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