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Did Community Rating Induce an Adverse Selection Death Spiral? Evidence from New York, Pennsylvania, and Connecticut

  • Thomas Buchmueller
  • John Dinardo

Using data from the 1987 to 1996 March Current Population Surveys we find no evidence for the conventional wisdom' that the imposition of pure community rating leads to an adverse selection death spiral.' Specifically, the percentage of individuals in small groups covered by health insurance did not fall in New York (which enacted community rating legislation in 1993) relative to either Pennsylvania (which enacted no insurance reform) or Connecticut (which enacted moderate insurance reform without imposing community rating). Consistent with the predictions of the simple Rothschild and Stiglitz (1975) framework, however, we find that the New York reforms appear to have had a significant impact on the structure of the New York insurance market. Specifically, New York has experienced a dramatic shift away from indemnity insurance toward HMOs. While this shift took place during a period of nationwide increases in the percentage with managed care, the increase in HMO penetration in New York's small group and individual markets was significantly greater than in Pennsylvania or Connecticut.

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 92 (2002)
Issue (Month): 1 (March)
Pages: 280-294

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Handle: RePEc:aea:aecrev:v:92:y:2002:i:1:p:280-294
Note: DOI: 10.1257/000282802760015720
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  1. David M. Cutler & Richard J. Zeckhauser, 1997. "Adverse Selection in Health Insurance," NBER Working Papers 6107, National Bureau of Economic Research, Inc.
  2. repec:oup:qjecon:v:111:y:1996:i:2:p:391-430 is not listed on IDEAS
  3. Shore-Sheppard, Lara & Buchmueller, Thomas C. & Jensen, Gail A., 2000. "Medicaid and crowding out of private insurance: a re-examination using firm level data," Journal of Health Economics, Elsevier, vol. 19(1), pages 61-91, January.
  4. Mark C. Berger & Dan A. Black & Frank A. Scott, 1998. "How Well Do We Measure Employer-Provided Health Insurance Coverage?," Contemporary Economic Policy, Western Economic Association International, vol. 16(3), pages 356-367, 07.
  5. repec:oup:qjecon:v:113:y:1998:i:2:p:433-466 is not listed on IDEAS
  6. repec:oup:qjecon:v:90:y:1976:i:4:p:630-49 is not listed on IDEAS
  7. Wilson, Charles, 1977. "A model of insurance markets with incomplete information," Journal of Economic Theory, Elsevier, vol. 16(2), pages 167-207, December.
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