Selection in Health Insurance Markets and Its Policy Remedies
Michael Geruso and
Timothy Layton ()
Journal of Economic Perspectives, 2017, vol. 31, issue 4, 23-50
Selection (adverse or advantageous) is the central problem that inhibits the smooth, efficient functioning of competitive health insurance markets. Even—and perhaps especially—when consumers are well-informed decision makers and insurance markets are highly competitive and offer choice, such markets may function inefficiently due to risk selection. Selection can cause markets to unravel with skyrocketing premiums and can cause consumers to be under- or overinsured. In its simplest form, adverse selection arises due to the tendency of those who expect to incur high health care costs in the future to be the most motivated purchasers. The costlier enrollees are more likely to become insured rather than to remain uninsured, and conditional on having health insurance, the costlier enrollees sort themselves to the more generous plans in the choice set. These dual problems represent the primary concerns for policymakers designing regulations for health insurance markets. In this essay, we review the theory and evidence concerning selection in competitive health insurance markets and discuss the common policy tools used to address the problems it creates. We emphasize the two markets that seem especially likely to be targets of reform in the short and medium term: Medicare Advantage (the private plan option available under Medicare) and the state-level individual insurance markets.
JEL-codes: D82 G22 H51 I13 I18 (search for similar items in EconPapers)
Note: DOI: 10.1257/jep.31.4.23
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6) Track citations by RSS feed
Downloads: (external link)
https://www.aeaweb.org/articles/attachments?retrie ... h7KODN9t0D8ufEsSc4eK (application/zip)
https://www.aeaweb.org/articles/attachments?retrie ... oC0t_Nbibh6BJVm81Dtu (application/zip)
Working Paper: Selection in Health Insurance Markets and Its Policy Remedies (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:aea:jecper:v:31:y:2017:i:4:p:23-50
Ordering information: This journal article can be ordered from
Access Statistics for this article
Journal of Economic Perspectives is currently edited by Enrico Moretti
More articles in Journal of Economic Perspectives from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().