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The Impact Of A Public Option In The U.S. Health Insurance Market

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  • Andrei Barbos
  • Yi Deng

Abstract

We develop a game‐theoretical framework to examine the implications of the introduction of a nonprofit “public option” in the U.S. health insurance market. In this model, heterogeneous consumers have to choose between two competing insurance plans. One plan is offered by a profit‐maximizing private insurer; the other by social‐welfare‐maximizing public option. In equilibrium, the distinct objectives of the two insurers induce adverse selection in consumer choice: the public option covers the less healthy consumers, yielding the more profitable segment of market to the private insurer. However, our empirical results suggest that both insurers will capture significant parts of the health insurance market. (JEL I11, L10, L21, L32)

Suggested Citation

  • Andrei Barbos & Yi Deng, 2015. "The Impact Of A Public Option In The U.S. Health Insurance Market," Economic Inquiry, Western Economic Association International, vol. 53(1), pages 508-521, January.
    • Handle: RePEc:bla:ecinqu:v:53:y:2015:i:1:p:508-521
    DOI: 10.1111/ecin.12132
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    References listed on IDEAS

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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Would a public option drive private health insurance out?
      by Economic Logician in Economic Logic on 2012-09-12 19:41:00

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    More about this item

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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