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Limited Attention and the Demand for Health Insurance

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  • Fels, Markus

Abstract

We analyze how customers with limited attention value and choose among health plans. We show how the model can accommodate three observations regarding plan choice. First, people tend to overweight the premium and thus underappreciate the value of health insurance. Second, insurance companies may have a strong incentive to reduce quality and to hide these shortcomings in the fine print while attracting customers with insufficiently lower premiums. Finally, the willingness-to-pay for insurance is subadditive creating an incentive for providers to unbundle comprehensive plans. We discuss how these three effects may result in a fundamental dilemma for policy makers.

Suggested Citation

  • Fels, Markus, 2013. "Limited Attention and the Demand for Health Insurance," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80485, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc13:80485
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets

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