One pool to insure them all? Age, risk and the price(s) of medical insurance

Thomas G. Koch

International Journal of Industrial Organization, 2014, vol. 35, issue C, 1-11

Abstract: Asymmetric information can lead to adverse selection and market failure. In a dynamic setting, asymmetric information also limits reclassification risk. This certainty offsets the costs of adverse selection. Using a dynamic model of endogenous insurance choice and price calibrated to the U.S. medical insurance market, I find that asymmetric information is Pareto improving when information is fully asymmetric. However, when insurers can discriminate by age group, but not within age groups, the young benefit by paying less for insurance. The insurance market for the near elderly collapses because it is no longer implicitly subsidized by the participation of the young.

Keywords: Asymmetric information; Adverse selection; Privacy laws (search for similar items in EconPapers)
JEL-codes: D82 I1 L51 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:35:y:2014:i:c:p:1-11

DOI: 10.1016/j.ijindorg.2014.05.001

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