Should There Be Vertical Choice in Health Insurance Markets?

Victoria Marone and Adrienne Sabety

No 28779, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the welfare effects of offering choice over coverage levels—“vertical choice”—in regulated health insurance markets. We emphasize that heterogeneity in the efficient level of coverage is not sufficient to motivate choice. When premiums do not reflect individuals' costs, it may not be in consumers' best interest to select their efficient coverage level. We show that vertical choice is efficient only if consumers with higher willingness to pay for insurance have a higher efficient level of coverage. We investigate this condition empirically and find that as long as a minimum coverage level can be enforced, the welfare gains from vertical choice are either zero or economically small.

JEL-codes: D82 G22 I13 (search for similar items in EconPapers)
Date: 2021-05
New Economics Papers: this item is included in nep-com, nep-cwa, nep-hea and nep-ias
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Citations: View citations in EconPapers (6)

Published as Victoria R. Marone & Adrienne Sabety, 2022. "When Should There Be Vertical Choice in Health Insurance Markets?," American Economic Review, vol 112(1), pages 304-342.

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