The Impact of a Public Option in the Health Insurance Market
AbstractWe develop a framework where to examine the implications of the introduction of a non- profit "public option" in the U.S. health insurance market. In this model, a continuum of heterogeneous consumers, each facing unknown medical expenditures, and differing in their expectations of such expenditures, have to choose between two competing plans. One plan is offered by a profit-maximizing private insurer; the other by social-welfare-maximizing public option. The model is calibrated based on data of U.S. medical expenditures and estimation of a Bayesian hierarchical model. The Nash Equilibrium of the resulting market structure is solved using a numerical algorithm. In equilibrium, the distinct objectives of the two insurers induce adverse selection in consumer choice: the public option covers the less healthy consumers, yielding the more profitable segment of market to the private insurer. However, our empirical results suggest that both insurers will capture significant parts of the health insurance market.
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Bibliographic InfoPaper provided by University of South Florida, Department of Economics in its series Working Papers with number 0813.
Length: 38 pages
Date of creation: Jan 2013
Date of revision:
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Public Health Insurance; Bayesian Hierarchial Model;
Other versions of this item:
- Barbos, Andrei & Deng, Yi, 2012. "The Impact of a Public Option in the Health Insurance Market," MPRA Paper 40849, University Library of Munich, Germany.
- I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
- L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
- L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
- L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-05-22 (All new papers)
- NEP-COM-2013-05-22 (Industrial Competition)
- NEP-HEA-2013-05-22 (Health Economics)
- NEP-IAS-2013-05-22 (Insurance Economics)
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.:
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- 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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