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Community Rating in Health Insurance : Trade-Off Between Coverage and Selection

Author

Listed:
  • Bijlsma, M.
  • Boone, Jan

    (Tilburg University, TILEC)

  • Zwart, G.T.J.

    (Tilburg University, TILEC)

Abstract

We analyze the role of community rating in the optimal design of a risk adjustment scheme in competitive health insurance markets when insurers have better information on their customers' risk profiles than the sponsor of health insurance. The sponsor offers insurers a menu of risk adjustment schemes to elicit this information. The optimal scheme includes a voluntary reinsurance option. Additionally, the scheme should sometimes be complemented by a community rating requirement. The resulting inefficient coverage of low-cost types lowers the sponsor's cost of separating different insurer types. This allows the sponsor to redistribute more rents from low-cost to high-cost consumers.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Bijlsma, M. & Boone, Jan & Zwart, G.T.J., 2015. "Community Rating in Health Insurance : Trade-Off Between Coverage and Selection," Discussion Paper 2015-022, Tilburg University, Tilburg Law and Economic Center.
    • Handle: RePEc:tiu:tiutil:43ea34f9-763a-451a-9f12-5761deb6a710
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    References listed on IDEAS

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    More about this item

    Keywords

    health insurance; cherry picking; risk adjustment; mechanism design;
    All these keywords.

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private

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