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Social Risk in Health Insurance: A Reflection on the Economies of Scale and Scope in Health Insurance

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  • Per‐Johan Horgby
  • Lars Söderström

Abstract

Social risk causes distortion in the health insurance market. In the presence of social risk, health insurance must be inflated with a safety loading. This implies that policyholder will choose incomplete risk transformation and that health insurers have to build up large capital reserves. By using cross‐diversification and enlarging the insurance pool with other kinds of risk (utilising economies of scope in addition to scale production), the problem of social risk will reduce. It is shown how this is possible by using the capital market as a diversification pool

Suggested Citation

  • Per‐Johan Horgby & Lars Söderström, 1998. "Social Risk in Health Insurance: A Reflection on the Economies of Scale and Scope in Health Insurance," Australian Economic Papers, Wiley Blackwell, vol. 37(2), pages 185-194, June.
    • Handle: RePEc:bla:ausecp:v:37:y:1998:i:2:p:185-194
    DOI: 10.1111/1467-8454.00014
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