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Adverse Selection in Low-Income Health Insurance Markets: Evidence from a RCT in Pakistan

Author

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  • Fischer, Torben

    (University of Mannheim)

  • Frölich, Markus

    (University of Mannheim)

  • Landmann, Andreas

    (University of Erlangen-Nuremberg)

Abstract

We present robust evidence on the presence of adverse selection in hospitalization insurance for low-income households. A large randomized control trial from Pakistan allows us to separate adverse selection from moral hazard, to estimate how selection changes at different points of the demand curve and to test simple measures against adverse selection. The results reveal substantial selection in individual policies, leading to welfare losses and the threat of a market breakdown. Bundling insurance policies at the household or higher levels almost eliminates adverse selection, thus mitigating its welfare consequences and creating the possibility for sustainable insurance supply.

Suggested Citation

  • Fischer, Torben & Frölich, Markus & Landmann, Andreas, 2018. "Adverse Selection in Low-Income Health Insurance Markets: Evidence from a RCT in Pakistan," IZA Discussion Papers 11751, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp11751
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    References listed on IDEAS

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    Cited by:

    1. Baillon, Aurélien & Capuno, Joseph & O'Donnell, Owen & Tan, Carlos Antonio & van Wilgenburg, Kim, 2022. "Persistent effects of temporary incentives: Evidence from a nationwide health insurance experiment," Journal of Health Economics, Elsevier, vol. 81(C).
    2. Abhijit Banerjee & Amy Finkelstein & Rema Hanna & Benjamin A. Olken & Arianna Ornaghi & Sudarno Sumarto, 2019. "The Challenges of Universal Health Insurance in Developing Countries: Evidence from a Large-scale Randomized Experiment in Indonesia," NBER Working Papers 26204, National Bureau of Economic Research, Inc.
    3. Emmanuel Nshakira-Rukundo & Essa Chanie Mussa & Nathan Nshakira & Nicolas Gerber & Joachim von Braun, 2021. "Impact of community-based health insurance on utilisation of preventive health services in rural Uganda: a propensity score matching approach," International Journal of Health Economics and Management, Springer, vol. 21(2), pages 203-227, June.
    4. Abhijit Banerjee & Rema Hanna & Benjamin A Olken & Sudarno Sumarto, "undated". "The Challenges of Universal Health Insurance in Developing Countries: Evidence from a Large-scale Randomized Experiment in Indonesia," Working Papers 1994, Publications Department.
    5. Abhijit Banerjee & Rema Hanna & Benjamin A Olken & Sudarno Sumarto, "undated". "Tantangan Jaminan Kesehatan Semesta di Negara Berkembang: Bukti dari Eksperimen Acak Skala Besar di Indonesia," Working Papers 3526, Publications Department.

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    More about this item

    Keywords

    health insurance; adverse selection; Pakistan;
    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
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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