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Risk Adjustment for Health Insurance: Theory and Implications

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  • Selden, Thomas M

Abstract

This paper explores the potential for welfare-improving public risk adjustment in health insurance markets characterized by adverse selection. The optimal risk adjustment system is derived in a theoretical model under a range of assumptions regarding government information and market equilibrium. Special attention is focused on the interaction between risk adjustment and the private transfers that can occur in markets characterized by adverse selection. Risk adjustment has the potential to improve both equity and efficiency; however, it can also have the effect of crowding out private transfers. Copyright 1998 by Kluwer Academic Publishers

Suggested Citation

  • Selden, Thomas M, 1998. "Risk Adjustment for Health Insurance: Theory and Implications," Journal of Risk and Uncertainty, Springer, vol. 17(2), pages 167-179, November.
    • Handle: RePEc:kap:jrisku:v:17:y:1998:i:2:p:167-79
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    Cited by:

    1. Mathias Kifmann & Normann Lorenz, 2011. "Optimal cost reimbursement of health insurers to reduce risk selection," Health Economics, John Wiley & Sons, Ltd., vol. 20(5), pages 532-552, May.
    2. Yujing Shen & Randall P. Ellis, 2002. "How profitable is risk selection? A comparison of four risk adjustment models," Health Economics, John Wiley & Sons, Ltd., vol. 11(2), pages 165-174, March.
    3. Karen Eggleston & Randall P. Ellis & Mingshan Lu, 2012. "Risk adjustment and prevention," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 45(4), pages 1586-1607, November.
    4. Karen Eggleston & Randall P. Ellis & Mingshan Lu, 2007. "Prevention and Dynamic Risk Adjustment," Boston University - Department of Economics - Working Papers Series WP2007-023, Boston University - Department of Economics.
    5. repec:clg:wpaper:2007-06 is not listed on IDEAS
    6. Selden, Thomas M., 1999. "Premium subsidies for health insurance: excessive coverage vs. adverse selection," Journal of Health Economics, Elsevier, vol. 18(6), pages 709-725, December.

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