The interaction of direct and indirect risk selection
This paper analyzes the interaction of direct and indirect risk selection in health insurance markets. It is shown that direct risk selection – using measures unrelated to the benefit package like selective advertising or ‘losing’ applications of high risk individuals – nevertheless has an influence on the distortions of the benefit package caused by indirect risk selection. Direct risk selection (DRS) may either increase or decrease these distortions, depending on the type of equilibrium (pooling or separating), the type of DRS (positive or negative) and the type of cost for DRS (individual-specific or not). Regulators who succeed in reducing DRS by, e.g., banning excessive advertising or implementing fines for ‘losing’ applications, may therefore (unintentionally) mitigate or exacerbate the distortions of the benefit package caused by indirect risk selection. It is shown that the interaction of direct and indirect risk selection also alters the formula for optimal risk adjustment.
|Date of creation:||2014|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +49 (0) 651 201-2739
Fax: +49 (0) 651 201-3934
Web page: http://www.uni-trier.de/index.php?id=2118
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- repec:cup:cbooks:9780521747387 is not listed on IDEAS
- repec:cup:cbooks:9780521766555 is not listed on IDEAS
- McGuire, Thomas G. & Glazer, Jacob & Newhouse, Joseph P. & Normand, Sharon-Lise & Shi, Julie & Sinaiko, Anna D. & Zuvekas, Samuel H., 2013. "Integrating risk adjustment and enrollee premiums in health plan payment," Journal of Health Economics, Elsevier, vol. 32(6), pages 1263-1277.
- Bijlsma, Michiel & Boone, Jan & Zwart, Gijsbert, 2011.
"Competition leverage: how the demand side affects optimal risk adjustment,"
CEPR Discussion Papers
8461, C.E.P.R. Discussion Papers.
- Michiel Bijlsma & Jan Boone & Gijsbert Zwart, 2014. "Competition leverage: how the demand side affects optimal risk adjustment," RAND Journal of Economics, RAND Corporation, vol. 45(4), pages 792-815, December.
- Michiel Bijlsma & Gijsbert Zwart & Jan Boone, 2011. "Competition leverage: How the demand side affects optimal risk adjustment," CPB Discussion Paper 181, CPB Netherlands Bureau for Economic Policy Analysis.
- Bijlsma, M. & Boone, J. & Zwart, G., 2011. "Competition Leverage : How the Demand Side Affects Optimal Risk Adjustment," Discussion Paper 2011-071, Tilburg University, Center for Economic Research.
- Bauhoff, Sebastian, 2012. "Do health plans risk-select? An audit study on Germany's Social Health Insurance," Journal of Public Economics, Elsevier, vol. 96(9-10), pages 750-759.
- Randall P. Ellis, 2012. "risk adjustment," The New Palgrave Dictionary of Economics, Palgrave Macmillan.
- Jack, William, 2006. "Optimal risk adjustment with adverse selection and spatial competition," Journal of Health Economics, Elsevier, vol. 25(5), pages 908-926, September.
- Yujing Shen & Randall P. Ellis, 2002. "How profitable is risk selection? A comparison of four risk adjustment models," Health Economics, John Wiley & Sons, Ltd., vol. 11(2), pages 165-174.
- Ellis, Randall P. & McGuire, Thomas G., 2007.
"Predictability and predictiveness in health care spending,"
Journal of Health Economics,
Elsevier, vol. 26(1), pages 25-48, January.
- Randall P. Ellis & Thomas G. McGuire, 2006. "Predictability and Predictiveness in Health Care Spending," Boston University - Department of Economics - Working Papers Series WP2006-001, Boston University - Department of Economics.
- Frank, Richard G. & Glazer, Jacob & McGuire, Thomas G., 2000. "Measuring adverse selection in managed health care," Journal of Health Economics, Elsevier, vol. 19(6), pages 829-854, November.
- Cao, Zhun & McGuire, Thomas G., 2003. "Service-level selection by HMOs in Medicare," Journal of Health Economics, Elsevier, vol. 22(6), pages 915-931, November.
- Normann Lorenz, 2013. "Adverse selection and risk adjustment under imperfect competition," Research Papers in Economics 2013-05, University of Trier, Department of Economics.
- Thomas G. McGuire & Jacob Glazer, 2000. "Optimal Risk Adjustment in Markets with Adverse Selection: An Application to Managed Care," American Economic Review, American Economic Association, vol. 90(4), pages 1055-1071, September.
When requesting a correction, please mention this item's handle: RePEc:trr:wpaper:201412. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Matthias Neuenkirch)
If references are entirely missing, you can add them using this form.