Risk Classification and Health Insurance
AbstractRisk classification refers to the use of observable characteristics by insurers to group individuals with similar expected claims, compute the corresponding premiums, and thereby reduce asymmetric information. With perfect risk classification, premiums fully reflect the expected cost associated with each class of risk characteristics and yield efficient outcomes. In the health sector, risk classification is also subject to concerns about social equity and potential discrimination. We present an analytical framework that illustrates the potential trade-off between efficient insurance provision and social equity. We also review empirical studies on risk classification and residual asymmetric information that inform this trade-off.
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Bibliographic InfoPaper provided by CIRPEE in its series Cahiers de recherche with number 1232.
Date of creation: 2012
Date of revision:
Adverse selection; Classification risk; Distributional equity; Empirical test of asymmetric information; Ex-ante efficiency; Financial equity; Genetic test; Group equity; Horizontal equity; Insurance rating; Interim efficiency; Moral hazard; Risk characteristic; Risk classification; Risk pooling; Risk separation; Social equity;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
- I14 - Health, Education, and Welfare - - Health - - - Health and Inequality
- I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
- I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-09-09 (All new papers)
- NEP-CTA-2012-09-09 (Contract Theory & Applications)
- NEP-HEA-2012-09-09 (Health Economics)
- NEP-IAS-2012-09-09 (Insurance Economics)
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