Risk Selection and Risk Adjustment

Randall Ellis and Timothy Layton

No wp2014-011, Boston University - Department of Economics - Working Papers Series from Boston University - Department of Economics

Abstract: Risk selection, which occurs when an individual’s demand for a product is correlated with her risk, creates inefficiencies and inequalities in markets for those products and services. Studies have shown that risk selection often occurs in health care markets, especially in markets for health insurance. Risk adjustment is a method that has been developed to correct those inefficiencies by using models to calculate risk and compensate suppliers for the risk of each individual purchasing their products. These models have become more sophisticated in recent years and are currently used in the health care systems of a number of countries.

Keywords: Adverse Selection; Asymmetric Information; Health Insurance; Managed Care; Managed Competition; Medicare; Moral Hazard; Risk Adjustment; Risk Aversion (search for similar items in EconPapers)
Pages: 22
Date: 2014
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Citations: View citations in EconPapers (7)

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