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Efficiency in Plan Choice with Risk Adjustment and Risk-Based Pricing in Health Insurance Exchanges

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  • Julie Shi

    () (Peking University)

Abstract

This paper explores the impacts of risk adjustment and risk-based pricing on the efficiency of consumer insurance selection in the Health Insurance Exchanges (HIEs) created by the health-care reform in the U.S. Selecting a population likely to participate in the HIEs from the Medical Expenditure Panel Survey, consumer choice between plans with different levels of generosity is simulated under various scenarios of policy implementation. The results show that risk-based pricing could, in general, improve or impair efficiency, depending on the heterogeneity of the health-care spending of the enrollees and the selection of rating bands, while risk adjustment always encourages consumers to enrol in the more generous plans, which, in the model, implies improvement in efficiency.

Suggested Citation

  • Julie Shi, 2017. "Efficiency in Plan Choice with Risk Adjustment and Risk-Based Pricing in Health Insurance Exchanges," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 42(1), pages 79-113, January.
  • Handle: RePEc:pal:gpprii:v:42:y:2017:i:1:d:10.1057_s41288-016-0025-0
    DOI: 10.1057/s41288-016-0025-0
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