Efficiency in Plan Choice with Risk Adjustment and Risk-Based Pricing in Health Insurance Exchanges

Julie Shi ()

The Geneva Papers on Risk and Insurance - Issues and Practice, 2017, vol. 42, issue 1, No 5, 79-113

Abstract: Abstract This paper explores the impacts of risk adjustment and risk-based pricing on the efficiency of consumer insurance selection in the Health Insurance Exchanges (HIEs) created by the health-care reform in the U.S. Selecting a population likely to participate in the HIEs from the Medical Expenditure Panel Survey, consumer choice between plans with different levels of generosity is simulated under various scenarios of policy implementation. The results show that risk-based pricing could, in general, improve or impair efficiency, depending on the heterogeneity of the health-care spending of the enrollees and the selection of rating bands, while risk adjustment always encourages consumers to enrol in the more generous plans, which, in the model, implies improvement in efficiency.

Keywords: adverse selection; risk adjustment; risk-based pricing; Health Insurance Exchanges (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1057/s41288-016-0025-0

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