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The Impact of a Public Option in the Health Insurance Market

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  • Barbos, Andrei
  • Deng, Yi

Abstract

We develop a game-theoretical model to examine the implications of the introduction of a non-profit "public option" in the U.S. health insurance market, in which a continuum of heterogeneous consumers, each facing unknown medical expenditures and differing in their expectations of such expenditures, have to choose between a profit-maximizing private insurance plan and a social-welfare-maximizing public plan. We then estimate and calibrate the model based on the U.S. data and quantify the Nash equilibrium of the market structure. Empirical results suggest that private insurer will still represent a significant part of the insurance market and generate a substantially positive profit.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 40849.

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Date of creation: 15 Jun 2012
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Handle: RePEc:pra:mprapa:40849

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Keywords: Public Option; Health Insurance Markets;

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References

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  1. Jeffrey R. Brown & Amy Finkelstein, 2004. "The Interaction of Public and Private Insurance: Medicaid and the Long-Term Care Insurance Market," NBER Working Papers 10989, National Bureau of Economic Research, Inc.
  2. Gruber, Jonathan & Simon, Kosali, 2008. "Crowd-out 10 years later: Have recent public insurance expansions crowded out private health insurance?," Journal of Health Economics, Elsevier, vol. 27(2), pages 201-217, March.
  3. David M. Cutler & Jonathan Gruber, 1995. "Does Public Insurance Crowd Out Private Insurance?," NBER Working Papers 5082, National Bureau of Economic Research, Inc.
  4. Anirban Basu & Willard G. Manning & John Mullahy, 2004. "Comparing alternative models: log vs Cox proportional hazard?," Health Economics, John Wiley & Sons, Ltd., vol. 13(8), pages 749-765.
  5. Lara D. Shore-Sheppard & John C. Ham, 2003. "The Effect of Medicaid Expansions for Low-Income Children on Medicaid Participation and Private Insurance Coverage : Evidence from the SIPP," Department of Economics Working Papers 2003-10, Department of Economics, Williams College.
  6. Lo Sasso, Anthony T. & Buchmueller, Thomas C., 2004. "The effect of the state children's health insurance program on health insurance coverage," Journal of Health Economics, Elsevier, vol. 23(5), pages 1059-1082, September.
  7. Leemore S. Dafny, 2010. "Are Health Insurance Markets Competitive?," American Economic Review, American Economic Association, vol. 100(4), pages 1399-1431, September.
  8. Krawczyk, Jacek & Zuccollo, James, 2006. "NIRA-3: An improved MATLAB package for finding Nash equilibria in infinite games," MPRA Paper 1119, University Library of Munich, Germany.
  9. Rask, Kevin N. & Rask, Kimberly J., 2000. "Public insurance substituting for private insurance: new evidence regarding public hospitals, uncompensated care funds, and medicaid," Journal of Health Economics, Elsevier, vol. 19(1), pages 1-31, January.
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  1. Would a public option drive private health insurance out?
    by Economic Logician in Economic Logic on 2012-09-12 14:41:00

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