Sources of Advantageous Selection: Evidence from the Medigap Insurance Market

Hanming Fang (), Michael P Keane () and Dan Silverman

No 12289, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We provide strong evidence of advantageous selection in the Medigap insurance market, and analyze its sources. Using Medicare Current Beneficiary Survey (MCBS) data, we find that, conditional on controls for the price of Medigap, medical expenditures for senior citizens with Medigap coverage are, on average, about $4,000 less than for those without. But, if we condition on health, expenditures for seniors on Medigap are about $2,000 more. These two findings can only be reconciled if those with less health expenditure risk are more likely to purchase Medigap, implying advantageous selection. By combining the MCBS and the Health and Retirement Study (HRS), we investigate the sources of this advantageous selection. These include income, education, longevity expectations and financial planing horizons, as well as cognitive ability. Once we condition on all these factors, seniors with higher expected medical expenditure are indeed more likely to purchase Medigap. Surprisingly, risk preferences do not appear to be a source of advantageous selection. But cognitive ability emerges as a particularly important factor, consistent with a view that many senior citizens have difficulty understanding Medicare and Medigap rules.

JEL-codes: D82 G22 I11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin, nep-fmk, nep-hea and nep-ias
Date: 2006-06
Note: CH PE
View list of references View citations in EconPapers

Downloads: (external link)
http://www.nber.org/papers/w12289.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html.

Related works:
Working Paper: Sources of Advantageous Selection: Evidence from the Medigap Insurance Market (2006)
Journal Article: Sources of Advantageous Selection: Evidence from the Medigap Insurance Market (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:nbr:nberwo:12289

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w12289
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc
Address: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Contact information at EDIRC.
Series data maintained by ().