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Employer-Provided Health Insurance and the Adverse Selection Problem

Author

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  • Marco A. Castaneda
  • James Marton

Abstract

The role of employers in the health insurance market in the United States is substantial, but there is little formal analysis investigating how the introduction of employers affects the structure of equilibrium contracts in the health insurance market. In this article, the authors present and analyze a model of employer-provided health insurance and show that if the labor market is competitive, the equilibrium must be a separating equilibrium, as in the standard model. The key to this result is that insurance companies and employers have similar incentives because health insurance is an important component of total compensation. In addition, the authors show that if workers bargain collectively for employment contracts, the equilibrium can be a separating or a pooling equilibrium, but in any equilibrium, the low risks obtain more insurance than in the standard model and subsidize the insurance premiums of the high risks.

Suggested Citation

  • Marco A. Castaneda & James Marton, 2013. "Employer-Provided Health Insurance and the Adverse Selection Problem," Public Finance Review, , vol. 41(1), pages 3-36, January.
    • Handle: RePEc:sae:pubfin:v:41:y:2013:i:1:p:3-36
    DOI: 10.1177/1091142111434594
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    References listed on IDEAS

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    1. Melissa A. Thomasson, 2003. "The Importance of Group Coverage: How Tax Policy Shaped U.S. Health Insurance," American Economic Review, American Economic Association, vol. 93(4), pages 1373-1384, September.
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    5. Thomas C. Buchmueller & John Dinardo & Robert G. Valletta, 2002. "Union Effects on Health Insurance Provision and Coverage in the United States," ILR Review, Cornell University, ILR School, vol. 55(4), pages 610-627, July.
    6. Jayanta Bhattacharya & William B. Vogt, 2006. "Employment and Adverse Selection in Health Insurance," NBER Working Papers 12430, National Bureau of Economic Research, Inc.
    7. Chernew, Michael E. & Frick, Kevin D., 1999. "The impact of managed care on the existence of equilibrium in health insurance markets," Journal of Health Economics, Elsevier, vol. 18(5), pages 571-590, October.
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    Cited by:

    1. Ines Läufer, 2014. "Das Krankenversicherungssystem in den USA: Bestimmungsparameter des Angebots und der Ausgestaltungformen von Arbeitgeber-Gruppenversicherungen," Otto-Wolff-Institut Discussion Paper Series 03/2014, Otto-Wolff-Institut für Wirtschaftsordnung, Köln, Deutschland.

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