Risk Signaling in the Health Insurance Market

Chu-Shiu Li
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Chu-Shiu Li: Department of Economics, Feng Chia University, Taiwan

International Journal of Business and Economics, 2005, vol. 4, issue 1, 45-52

Abstract: This paper analyzes equilibrium health insurance premium dependencies on signaling costs given individual health states, risk types, and risk type attributes. Since precise determination of an individual's premium is costly, insurers can categorize insureds based on relative screening costs. We show for two risk types, the equilibrium premium is either community-rated or risk-rated depending on screening costs. For multiple risk types, both policies may be concurrently available in equilibrium.

Keywords: adverse selection; separating equilibrium; pooling equilibrium; signaling costs (search for similar items in EconPapers)
JEL-codes: G22 I11 (search for similar items in EconPapers)
Date: 2005
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