Adverse Selection and Inertia in Health Insurance Markets: When Nudging Hurts

Benjamin R. Handel

American Economic Review, 2013, vol. 103, issue 7, 2643-82

Abstract: This paper investigates consumer inertia in health insurance markets, where adverse selection is a potential concern. We leverage a major change to insurance provision that occurred at a large firm to identify substantial inertia, and develop and estimate a choice model that also quantifies risk preferences and ex ante health risk. We use these estimates to study the impact of policies that nudge consumers toward better decisions by reducing inertia. When aggregated, these improved individual-level choices substantially exacerbate adverse selection in our setting, leading to an overall reduction in welfare that doubles the existing welfare loss from adverse selection.

JEL-codes: D82 G22 I13 (search for similar items in EconPapers)
Date: 2013
Note: DOI: 10.1257/aer.103.7.2643
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Citations: View citations in EconPapers (399)

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