Advanced Search
MyIDEAS: Login to save this paper or follow this series

The interaction of direct and indirect risk selection

Contents:

Author Info

  • Normann Lorenz
Registered author(s):

    Abstract

    This paper analyzes the interaction of direct and indirect risk selection in health insurance markets. It is shown that direct risk selection – using measures unrelated to the benefit package like selective advertising or ‘losing’ applications of high risk individuals – nevertheless has an influence on the distortions of the benefit package caused by indirect risk selection. Direct risk selection (DRS) may either increase or decrease these distortions, depending on the type of equilibrium (pooling or separating), the type of DRS (positive or negative) and the type of cost for DRS (individual-specific or not). Regulators who succeed in reducing DRS by, e.g., banning excessive advertising or implementing fines for ‘losing’ applications, may therefore (unintentionally) mitigate or exacerbate the distortions of the benefit package caused by indirect risk selection. It is shown that the interaction of direct and indirect risk selection also alters the formula for optimal risk adjustment.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.uni-trier.de/fileadmin/fb4/prof/VWL/EWF/Research_Papers/2014-12.pdf
    File Function: First version, 2014
    Download Restriction: no

    Bibliographic Info

    Paper provided by University of Trier, Department of Economics in its series Research Papers in Economics with number 2014-12.

    as in new window
    Length: 25 pages
    Date of creation: 2014
    Date of revision:
    Handle: RePEc:trr:wpaper:201412

    Contact details of provider:
    Postal: B IV, VWL, D-54286 Trier
    Phone: +49 (0) 651 201-2739
    Fax: +49 (0) 651 201-3934
    Web page: http://www.uni-trier.de/index.php?id=2118
    More information through EDIRC

    Related research

    Keywords: Risk selection; risk adjustment; discrete choice;

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Ellis, Randall P. & McGuire, Thomas G., 2007. "Predictability and predictiveness in health care spending," Journal of Health Economics, Elsevier, Elsevier, vol. 26(1), pages 25-48, January.
    2. Kenneth Train, 2003. "Discrete Choice Methods with Simulation," Online economics textbooks, SUNY-Oswego, Department of Economics, SUNY-Oswego, Department of Economics, number emetr2, Spring.
    3. Bijlsma, Michiel & Boone, Jan & Zwart, Gijsbert, 2011. "Competition leverage: how the demand side affects optimal risk adjustment," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8461, C.E.P.R. Discussion Papers.
    4. Jack, William, 2006. "Optimal risk adjustment with adverse selection and spatial competition," Journal of Health Economics, Elsevier, Elsevier, vol. 25(5), pages 908-926, September.
    5. McGuire, Thomas G. & Glazer, Jacob & Newhouse, Joseph P. & Normand, Sharon-Lise & Shi, Julie & Sinaiko, Anna D. & Zuvekas, Samuel H., 2013. "Integrating risk adjustment and enrollee premiums in health plan payment," Journal of Health Economics, Elsevier, Elsevier, vol. 32(6), pages 1263-1277.
    6. Thomas G. McGuire & Jacob Glazer, 2000. "Optimal Risk Adjustment in Markets with Adverse Selection: An Application to Managed Care," American Economic Review, American Economic Association, American Economic Association, vol. 90(4), pages 1055-1071, September.
    7. Normann Lorenz, 2013. "Adverse selection and risk adjustment under imperfect competition," Research Papers in Economics, University of Trier, Department of Economics 2013-05, University of Trier, Department of Economics.
    8. Bauhoff, Sebastian, 2012. "Do health plans risk-select? An audit study on Germany's Social Health Insurance," Journal of Public Economics, Elsevier, Elsevier, vol. 96(9-10), pages 750-759.
    9. Frank, Richard G. & Glazer, Jacob & McGuire, Thomas G., 2000. "Measuring adverse selection in managed health care," Journal of Health Economics, Elsevier, Elsevier, vol. 19(6), pages 829-854, November.
    10. Cao, Zhun & McGuire, Thomas G., 2003. "Service-level selection by HMOs in Medicare," Journal of Health Economics, Elsevier, Elsevier, vol. 22(6), pages 915-931, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:trr:wpaper:201412. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Matthias Neuenkirch).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.