Pricing and Welfare in Health Plan Choice

M. Kate Bundorf, Jonathan Levin and Neale Mahoney

American Economic Review, 2012, vol. 102, issue 7, 3214-48

Abstract: Premiums in health insurance markets frequently do not reflect individual differences in costs, either because consumers have private information or because prices are not risk rated. This creates inefficiencies when consumers self-select into plans. We develop a simple econometric model to study this problem and estimate it using data on small employers. We find a welfare loss of 2-11 percent of coverage costs compared to what is feasible with risk rating. Only about one-quarter of this is due to inefficiently chosen uniform contribution levels. We also investigate the reclassification risk created by risk rating individual incremental premiums, finding only a modest welfare cost. (JEL G22, I13, I18)

JEL-codes: G22 I13 I18 (search for similar items in EconPapers)
Date: 2012
Note: DOI: 10.1257/aer.102.7.3214
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Citations: View citations in EconPapers (90)

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Related works:
Working Paper: Pricing and Welfare in Health Plan Choice (2008)
Working Paper: Pricing and Welfare in Health Plan Choice (2008)
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