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Adverse Selection, Moral Hazard and the Demand for Medigap Insurance

  • Michael Keane

    ()

    (School of Economics and ARC Centre of Excellence in Population Ageing Research, Australian School of Business, University of New South Wales)

  • Olena Stavrunova

    ()

    (School of Finance and Economics, University of Technology Sydney and ARC Centre of Excellence in Population Ageing Research, Australian School of Business, University of New South Wales)

The size of adverse selection and moral hazard eects in health insurance markets has important policy implications. For example, if adverse selection eects are small while moral hazard eects are large, conventional remedies for inefficiencies created by adverse selection (e.g., mandatory insurance enrolment) may lead to substantial increases in health care spending. Unfortunately, there is no consensus on the magnitudes of adverse selection vs. moral hazard. This paper sheds new light on this important topic by studying the US Medigap (supplemental) health insurance market.

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File URL: http://cepar.edu.au/media/48634/Adverse%20Selection,%20Moral%20Hazard.pdf
File Function: First version, 2011
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Paper provided by ARC Centre of Excellence in Population Ageing Research (CEPAR), Australian School of Business, University of New South Wales in its series Working Papers with number 201119.

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Length: 80 pages
Date of creation: Nov 2011
Date of revision:
Handle: RePEc:asb:wpaper:201119
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