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Should There Be Vertical Choice in Health Insurance Markets?


  • Victoria R. Marone
  • Adrienne Sabety


We study the welfare effects of offering choice over coverage levels—“vertical choice”—in regulated health insurance markets. We emphasize that heterogeneity in the efficient level of coverage is not sufficient to motivate choice. When premiums do not reflect individuals' costs, it may not be in consumers' best interest to select their efficient coverage level. We show that vertical choice is efficient only if consumers with higher willingness to pay for insurance have a higher efficient level of coverage. We investigate this condition empirically and find that as long as a minimum coverage level can be enforced, the welfare gains from vertical choice are either zero or economically small.

Suggested Citation

  • Victoria R. Marone & Adrienne Sabety, 2021. "Should There Be Vertical Choice in Health Insurance Markets?," NBER Working Papers 28779, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:28779
    Note: EH IO

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    Cited by:

    1. Martin Gaynor & Kate Ho & Robert J. Town, 2015. "The Industrial Organization of Health-Care Markets," Journal of Economic Literature, American Economic Association, vol. 53(2), pages 235-284, June.
    2. Rudi Rocha & Maíra Coube Salmen & Tatiana Lima & Fábio Miessi & Rodrigo Moreno-Serra & Matías Mrejen & Beatriz Rache & Rodrigo R. Soares & Mônica Viegas, 2021. "Considerações sobre a Reforma da Lei dos Planos de Saúde e seus Possíveis Impactos sobre o SUS," Technical Notes 024, Instituto de Estudos para Políticas de Saúde.
    3. de Meza, David & Reito, Francesco & Reyniers, Diane, 2021. "Too much trade: The hidden problem of adverse selection," Journal of Public Economics, Elsevier, vol. 204(C).
    4. Ferrari, Alessandro & Loseto, Marco, 2023. "Liquidity constraints and demand for maturity the case of mortgages," Working Paper Series 2859, European Central Bank.
    5. Benjamin R. Handel & Jonathan T. Kolstad, 2021. "The Affordable Care Act After a Decade: Industrial Organization of the Insurance Exchanges," NBER Working Papers 29178, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private

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