Consumer Demand for Guaranteed Renewability in Health Insurance

This paper addresses the following question: Why do consumers demand guaranteed renewability in health insurance? The answer to this question has important implications for the ability of competitive health insurance markets to provide affordable health insurance for people with chronic illness. The approach is novel. Empirical studies show that guaranteed renewability exists in health and life insurance. In the health insurance setting, these findings imply that consumers' preferences for low premiums and quality do not depend on their health status. Then consumer preference data collected from a survey of approximately 1,000 single employees in 19 Minneapolis-area companies are examined to determine if healthy and unhealthy consumers have similar preferences for low premiums and quality. It is found that employees' preference ratings for the importance of low premiums and aspects of provider and service quality are not related to their health status. These findings imply that health-related diversity of preferences is not likely to cause the employees in this study to select different health insurance plans. However, there is evidence of diverse preferences related to employee demographics such as income, education, and gender.