Pricing and Welfare in Health Plan Choice

M. Kate Bundorf, Jonathan Levin and Neale Mahoney

No 14153, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Prices in government and employer-sponsored health insurance markets only partially reflect insurers' expected costs of coverage for different enrollees. This can create inefficient distortions when consumers self-select into plans. We develop a simple model to study this problem and estimate it using new data on small employers. In the markets we observe, the welfare loss compared to the feasible efficient benchmark is around 2-11% of coverage costs. Three-quarters of this is due to restrictions on risk-rating employee contributions; the rest is due to inefficient contribution choices. Despite the inefficiency, we find substantial benefits from plan choice relative to single-insurer options.

JEL-codes: D40 D61 D82 I11 L11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hea and nep-ias
Date: 2008-06
Note: HC HE IO PE
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