How Adverse Selection Affects the Health Insurance Market

Belli, Paolo

World Bank, Washington, DC

关键词: AGENTS;    ASYMMETRIC INFORMATION;    AVERAGE COSTS;    COMPENSATION;    COMPETITIVE MARKETS;   

DOI  :  10.1596/1813-9450-2574
RP-ID  :  WPS2574

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

Adverse selection can be defined asstrategic behavior by the more informed partner in acontract against the interest of the less informedpartner(s). In the health insurance field, this manifestsitself through healthy people choosing managed care and lesshealthy people choosing more generous plans. Drawing ontheoretical literature on the problem of adverse selectionin the health insurance market, the author synthesizesconcepts developed piecemeal over more than 20 years, usingtwo examples and revisiting the classical contribution ofRothschild and Stiglitz. He highlights key insights,especially from the literature on "equilibriumrefinements" and on the theory of "secondbest." The government can correct spontaneous marketdynamics in the health insurance market by directlysubsidizing insurance or through regulation; the two formsof intervention provide different results. Providing partialpublic insurance, even supplemented by the possibility ofopting out, can lead to second-best equilibria. The sameresult holds as long as the government can subsidizecontracts with higher-than-average premium-benefit ratiosand can tax contracts with lower-than-averagepremium-benefit ratios. The author analyzes the followingpolicy options relating to the public provision ofinsurance: a) Full public insurance. b) Partial publicinsurance with or without the possibility of acquiringsupplementary insurance and with or without the possibilityof opting out. In recent plans implemented in Germany andthe Netherlands, where competition among several healthfunds and insurance companies was promoted, a public fundwas created to discourage risk screening practices byproviding the necessary compensation across riks groups. Butonly "objective" risk adjusters (such as age,gender, and region) were used to decide which contracts tosubsidize. Those criteria alone cannot correct the effectsof adverse selection. Regulation can exacerbate the problemof adverse selection and lead to chronic market instability,so certain steps must be taken to prevent risk screening andpreserve competition for the market. The author considersthe following three policy options for regulating theprivate insurance market: 1) A standard contract with fullcoverage. 2) Imposition of a minimum insurance requirement.3) Imposition of premium rate restrictions.