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Health Insurance for "Humans": Information Frictions, Plan Choice, and Consumer Welfare

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  • Benjamin R. Handel
  • Jonathan T. Kolstad

Abstract

Traditional models of insurance choice are predicated on fully informed and rational consumers protecting themselves from exposure to financial risk. In practice, choosing an insurance plan is a complicated decision often made without full information. In this paper we combine new administrative data on health plan choices and claims with unique survey data on consumer information to identify risk preferences, information frictions, and hassle costs. Our additional friction measures are important predictors of choices and meaningfully impact risk preference estimates. We study the implications of counterfactual insurance allocations to illustrate the importance of distinguishing between these micro-foundations for welfare analysis. (JEL D81, D8 3, G22, I13)

Suggested Citation

  • Benjamin R. Handel & Jonathan T. Kolstad, 2015. "Health Insurance for "Humans": Information Frictions, Plan Choice, and Consumer Welfare," American Economic Review, American Economic Association, vol. 105(8), pages 2449-2500, August.
    • Handle: RePEc:aea:aecrev:v:105:y:2015:i:8:p:2449-2500
    Note: DOI: 10.1257/aer.20131126
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    References listed on IDEAS

    as
    1. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521766555.
    2. Benjamin R. Handel, 2013. "Adverse Selection and Inertia in Health Insurance Markets: When Nudging Hurts," American Economic Review, American Economic Association, vol. 103(7), pages 2643-2682, December.
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    More about this item

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • 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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