Gold and Silver health plans: Accommodating demand heterogeneity in managed competition

Jacob Glazer () and Thomas G. McGuire

Journal of Health Economics, 2011, vol. 30, issue 5, 1011-1019

Abstract: New regulation of health insurance markets creates multiple levels of health plans, with designations like “Gold” and “Silver.” The underlying rationale for the heavy-metal approach to insurance regulation is that heterogeneity in demand for health care is not only due to health status (sick demand more than the healthy) but also to other, “taste” related factors (rich demand more than the poor). This paper models managed competition with demand heterogeneity to consider plan payment and enrollee premium policies in relation to efficiency (net consumer benefit) and fairness (the European concept of “solidarity”). Specifically, this paper studies how to implement a “Silver” and “Gold” health plan efficiently and fairly in a managed competition context. We show that there are sharp tradeoffs between efficiency and fairness. When health plans cannot or may not (because of regulation) base premiums on any factors affecting demand, enrollees do not choose the efficient plan. When taste (e.g., income) can be used as a basis of payment, a simple tax can achieve both efficiency and fairness. When only health status (and not taste) can be used as a basis of payment, health status-based taxes and subsidies are required and efficiency can only be achieved with a modified version of fairness we refer to as “weak solidarity.” An overriding conclusion is that the regulation of premiums for both the basic and the higher level plans is necessary for efficiency.

Keywords: Health economics; Managed competition; Health insurance (search for similar items in EconPapers)
JEL-codes: I10 I14 I18 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jhecon:v:30:y:2011:i:5:p:1011-1019

DOI: 10.1016/j.jhealeco.2011.05.018

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