Premium Risk and Managed Care

Mathias Kifmann ()

Journal of Risk and Uncertainty, 2001, vol. 22, issue 3, 277-93

Abstract: This paper analyzes how individuals can insure premium risk and obtain high quality health insurance in a managed care environment. Insurers choose health care providers. Only a fraction of high risk individuals is unambiguously identifiable in front of a court. Premium insurance is not able to reach a first-best risk allocation while health insurers have an incentive to stint on quality under guaranteed renewable contracts. It is shown that a contract exists which can implement the first-best. This contract specifies payments to individuals and a third party upon switching to create a credible self-commitment by the insurer to provide high quality. Copyright 2001 by Kluwer Academic Publishers

Date: 2001
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