Pricing and Welfare in Health Plan Choice.

Journal Article (Journal Article)

Premiums in health insurance markets frequently do not reflect individual differences in costs, either because consumers have private information or because prices are not risk rated. This creates inefficiencies when consumers self-select into plans. We develop a simple econometric model to study this problem and estimate it using data on small employers. We find a welfare loss of 2-11 percent of coverage costs compared to what is feasible with risk rating. Only about one-quarter of this is due to inefficiently chosen uniform contribution levels. We also investigate the reclassification risk created by risk rating individual incremental premiums, finding only a modest welfare cost.

Full Text

Duke Authors

Cited Authors

  • Bundorf, MK; Levin, J; Mahoney, N

Published Date

  • December 2012

Published In

Volume / Issue

  • 102 / 7

Start / End Page

  • 3214 - 3248

PubMed ID

  • 29522300

Electronic International Standard Serial Number (EISSN)

  • 1944-7981

International Standard Serial Number (ISSN)

  • 0002-8282

Digital Object Identifier (DOI)

  • 10.1257/aer.102.7.3214

Language

  • eng