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One pool to insure them all? Age, risk and the price(s) of medical insurance

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  • Koch, Thomas G.

Abstract

Asymmetric information can lead to adverse selection and market failure. In a dynamic setting, asymmetric information also limits reclassification risk. This certainty offsets the costs of adverse selection. Using a dynamic model of endogenous insurance choice and price calibrated to the U.S. medical insurance market, I find that asymmetric information is Pareto improving when information is fully asymmetric. However, when insurers can discriminate by age group, but not within age groups, the young benefit by paying less for insurance. The insurance market for the near elderly collapses because it is no longer implicitly subsidized by the participation of the young.

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  • Koch, Thomas G., 2014. "One pool to insure them all? Age, risk and the price(s) of medical insurance," International Journal of Industrial Organization, Elsevier, vol. 35(C), pages 1-11.
    • Handle: RePEc:eee:indorg:v:35:y:2014:i:c:p:1-11
    DOI: 10.1016/j.ijindorg.2014.05.001
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    References listed on IDEAS

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    1. Benjamin R. Handel & Igal Hendel & Michael D. Whinston, 2013. "Equilibria in Health Exchanges: Adverse Selection vs. Reclassification Risk," NBER Working Papers 19399, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Arthur Snow, 2015. "Monopolistic Insurance and the Value of Information," Risks, MDPI, vol. 3(3), pages 1-13, July.

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    More about this item

    Keywords

    Asymmetric information; Adverse selection; Privacy laws;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • I1 - Health, Education, and Welfare - - Health
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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