Paying For Health Insurance: The Trade-Off Between Competition And Adverse Selection
We use data on health plan choices by employees of Harvard University to compare the benefits of insurance competition with the costs of adverse selection. Moving to a voucher-type system induced significant adverse selection, with a welfare loss of 2 to 4 percent of baseline spending. But increased competition reduced Harvard's premiums by 5 to 8 percent. The premium reductions came from insurer profits, so while Harvard was better off, the net effect for society was only the adverse selection loss. Adverse selection can be minimized by adjusting voucher amounts for individual risk. We discuss how such a system would work. © 2000 the President and Fellows of Harvard College and the Massachusetts Institute of Technology
Volume (Year): 113 (1998)
Issue (Month): 2 (May)
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References listed on IDEAS
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- W. P. Welch, 1986. "The Elasticity of Demand for Health Maintenance Organizations," Journal of Human Resources, University of Wisconsin Press, vol. 21(2), pages 252-266.
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- Roger Feldman & Michael Finch & Bryan Dowd & Steven Cassou, 1989. "The Demand for Employment-Based Health Insurance Plans," Journal of Human Resources, University of Wisconsin Press, vol. 24(1), pages 115-142.
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