Minimum coverage regulation in insurance markets

Daniel McFadden, Carlos Noton and Pau Olivella

SERIEs: Journal of the Spanish Economic Association, 2015, vol. 6, issue 3, 247-278

Abstract: We study the consequences of imposing a minimum coverage in an insurance market where enrollment is mandatory and agents have private information on their true risk type. If the regulation is not too stringent, the equilibrium is separating in which a single insurer monopolizes the high risks while the rest attract the low risks, all at positive profits. Hence individuals, regardless of their type, “subsidize” insurers. If the legislation is sufficiently stringent the equilibrium is pooling, all insurers just break even and low risks subsidize high risks. None of these results require resorting to non-Nash equilibrium notions. Copyright The Author(s) 2015

Keywords: Health insurance; Mandatory enrollment; Minimum coverage regulation; Asymmetric information; Market equilibrium; Cross-subsidization; I13 (Health Insurance; Public and Private); D82 (Asymmetric and Private Information; Mechanism Design) (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (3)

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Working Paper: Minimum Coverage Regulation in Insurance Markets (2013)
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DOI: 10.1007/s13209-015-0126-1

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