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Minimum coverage regulation in insurance markets

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  • Daniel McFadden
  • Carlos Noton
  • Pau Olivella

Abstract

We study the consequences of imposing a minimum coverage in an insurance market where enrollment is mandatory and agents have private information on their true risk type. If the regulation is not too stringent, the equilibrium is separating in which a single insurer monopolizes the high risks while the rest attract the low risks, all at positive profits. Hence individuals, regardless of their type, “subsidize” insurers. If the legislation is sufficiently stringent the equilibrium is pooling, all insurers just break even and low risks subsidize high risks. None of these results require resorting to non-Nash equilibrium notions. Copyright The Author(s) 2015

Suggested Citation

  • Daniel McFadden & Carlos Noton & Pau Olivella, 2015. "Minimum coverage regulation in insurance markets," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 6(3), pages 247-278, August.
    • Handle: RePEc:spr:series:v:6:y:2015:i:3:p:247-278
    DOI: 10.1007/s13209-015-0126-1
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    Cited by:

    1. Daniel McFadden & Carlos Noton & Pau Olivella, "undated". "Remedies for Sick Insurance," Working Papers 620, Barcelona School of Economics.
    2. De La Mata, Dolores & Machado, Matilde P. & Olivella, Pau & Valdés, Maria Nieves, 2022. "Asymmetric Information with multiple risks: the case of the Chilean Private Health Insurance Market," UC3M Working papers. Economics 35441, Universidad Carlos III de Madrid. Departamento de Economía.
    3. Spencer Bastani & Tomer Blumkin & Luca Micheletto, 2019. "The Welfare-Enhancing Role of Parental Leave Mandates," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 35(1), pages 77-126.

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    More about this item

    Keywords

    Health insurance; Mandatory enrollment; Minimum coverage regulation; Asymmetric information; Market equilibrium; Cross-subsidization; I13 (Health Insurance; Public and Private); D82 (Asymmetric and Private Information; Mechanism Design);
    All these keywords.

    JEL classification:

    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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