Efficient Transfer of Aging Provisions in Private Health Insurance
In German-style private health insurance contracts, aging provisions are used to flatten premium profiles. An individual would like to change insurer if she perceives a low service quality. The first-best optimum is characterized by provision transfers upon insurer changes which are higher for high risks and may be negative for low risks. Should the actual risk status not be verifiable, provision transfers have to be uniform. Efficient transfers will equalize consumption across periods and states if high risks are deterred from switching. Otherwise, the optimum transfer balances the distortion of incentives for high-risk and low-risk individuals.
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Volume (Year): 84 (2005)
Issue (Month): 3 (05)
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