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Choice, Price Competition and Complexity in Markets for Health Insurance

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Author Info
Richard Frank
Karine Lamiraud

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Abstract

The United States and other nations rely on consumer choice and price competition among competing health plans to allocate resources in the health sector. A great deal of research has examined the efficiency consequences of adverse selection in health insurance markets, less attention has been devoted to other aspects of consumer choice. The nation of Switzerland offers a unique opportunity to study price competition in health insurance markets. Switzerland regulates health insurance markets with the aim of minimizing adverse selection and encouraging strong price competition. We examine consumer responses to price differences in local markets and the degree of price variation in local markets. Using both survey data and observations on local markets we obtain evidence suggesting that as the number of choices offered to individuals grow their willingness to switch plans given a set of price dispersion differences declines allowing large price differences for relatively homogeneous products to persist. We consider explanations for this phenomenon from economics and psychology.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13817.

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Date of creation: Feb 2008
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Handle: RePEc:nbr:nberwo:13817

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I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets

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References listed on IDEAS
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  1. Griffiths, William & Judge, George, 1992. "Testing and estimating location vectors when the error covariance matrix is unknown," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 121-138. [Downloadable!] (restricted)
  2. David M. Cutler & Sarah J. Reber, 1998. "Paying For Health Insurance: The Trade-Off Between Competition And Adverse Selection," The Quarterly Journal of Economics, MIT Press, vol. 113(2), pages 433-466, May. [Downloadable!] (restricted)
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  3. Greene, W., 2001. "Fixed and Random Effects in Nonlinear Models," New York University, Leonard N. Stern School Finance Department Working Paper Seires 01-01, New York University, Leonard N. Stern School of Business-.
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  4. Perloff, Jeffrey M & Salop, Steven C, 1985. "Equilibrium with Product Differentiation," Review of Economic Studies, Blackwell Publishing, vol. 52(1), pages 107-20, January. [Downloadable!] (restricted)
  5. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September. [Downloadable!] (restricted)
  6. Tversky, Amos & Kahneman, Daniel, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1039-61, November. [Downloadable!] (restricted)
  7. Samuelson, William & Zeckhauser, Richard, 1988. " Status Quo Bias in Decision Making," Journal of Risk and Uncertainty, Springer, vol. 1(1), pages 7-59, March.
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  1. Randall D. Cebul & James B. Rebitzer & Lowell J. Taylor & Mark E. Votruba, 2008. "Unhealthy Insurance Markets: Search Frictions and the Cost and Quality of Health Insurance," NBER Working Papers 14455, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Randall D. Cebul & James B. Rebitzer & Lowell J. Taylor & Mark Votruba, 2008. "Organizational Fragmentation and Care Quality in the U.S. Health Care System," NBER Working Papers 14212, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Bolhaar, J & Lindeboom, M & van der Klaauw, B, 2009. "Insurance Search and Switching Behaviour at the time of the Dutch Health Insurance Reform," Health, Econometrics and Data Group (HEDG) Working Papers 09/14, HEDG, c/o Department of Economics, University of York. [Downloadable!]
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