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

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  • Thomas Buchmueller
  • John Dinardo

Abstract

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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Suggested Citation

  • Thomas Buchmueller & John Dinardo, 2002. "Did Community Rating Induce an Adverse Selection Death Spiral? Evidence from New York, Pennsylvania, and Connecticut," American Economic Review, American Economic Association, vol. 92(1), pages 280-294, March.
  • Handle: RePEc:aea:aecrev:v:92:y:2002:i:1:p:280-294
    Note: DOI: 10.1257/000282802760015720
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    References listed on IDEAS

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    1. Wilson, Charles, 1977. "A model of insurance markets with incomplete information," Journal of Economic Theory, Elsevier, vol. 16(2), pages 167-207, December.
    2. David M. Cutler & Richard J. Zeckhauser, 1998. "Adverse Selection in Health Insurance," NBER Chapters, in: Frontiers in Health Policy Research, Volume 1, pages 1-32, National Bureau of Economic Research, Inc.
    3. Thomas Buchmueller & John Dinardo, 2002. "Did Community Rating Induce an Adverse Selection Death Spiral? Evidence from New York, Pennsylvania, and Connecticut," American Economic Review, American Economic Association, vol. 92(1), pages 280-294, March.
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    More about this item

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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