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Cross-subsidization in the market for employment-related health insurance

Author

Listed:
  • Alan C. Monheit

    (Center for Cost and Financing Studies, Agency for Healthcare Research and Quality, Rockville, MD, USA)

  • Thomas M. Selden

    (Center for Cost and Financing Studies, Agency for Healthcare Research and Quality, Rockville, MD, USA)

Abstract

This paper uses data from the 1987 National Medical Expenditure Survey to examine the nature of equilibrium in the market for employment-related health insurance. We examine coverage generosity, premiums, and insurance benefits net of expenditures on premiums, showing that despite a degree of market segmentation, there was a substantial amount of pooling of heterogeneous risks in 1987 among households with employment-related coverage. Our results are largely invariant to (i) firm size and (ii) whether or not employers offer a choice among plans. Our results suggest the need for caution concerning incremental reforms that would weaken the link between employment and insurance without substituting alternative institutions for the pooling of risks. Copyright © 2000 Published in 2000 by John Wiley & Sons, Ltd.

Suggested Citation

  • Alan C. Monheit & Thomas M. Selden, 2000. "Cross-subsidization in the market for employment-related health insurance," Health Economics, John Wiley & Sons, Ltd., vol. 9(8), pages 699-714.
  • Handle: RePEc:wly:hlthec:v:9:y:2000:i:8:p:699-714
    DOI: 10.1002/1099-1050(200012)9:8<699::AID-HEC546>3.0.CO;2-5
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    References listed on IDEAS

    as
    1. Ellis, Randall P, 1989. "Employee Choice of Health Insurance," The Review of Economics and Statistics, MIT Press, vol. 71(2), pages 215-223, May.
    2. David M. Cutler & Richard J. Zeckhauser, 1998. "Adverse Selection in Health Insurance," NBER Chapters,in: Frontiers in Health Policy Research, Volume 1, pages 1-32 National Bureau of Economic Research, Inc.
    3. Marquis, M. Susan, 1992. "Adverse selection with a multiple choice among health insurance plans: A simulation analysis," Journal of Health Economics, Elsevier, vol. 11(2), pages 129-151, August.
    4. David M. Cutler & Sarah J. Reber, 1998. "Paying for Health Insurance: The Trade-Off between Competition and Adverse Selection," The Quarterly Journal of Economics, Oxford University Press, vol. 113(2), pages 433-466.
    5. 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.
    6. Gruber, Jonathan, 1994. "The Incidence of Mandated Maternity Benefits," American Economic Review, American Economic Association, vol. 84(3), pages 622-641, June.
    7. David Cutler, 1994. "Market Failure in Small Group Health Insurance," NBER Working Papers 4879, National Bureau of Economic Research, Inc.
    8. Wilson, Charles, 1977. "A model of insurance markets with incomplete information," Journal of Economic Theory, Elsevier, vol. 16(2), pages 167-207, December.
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