Community rating in health insurance: trade-off between coverage and selection

Jan Boone and Gijsbert Zwart

No 10943, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We analyze the role of community rating in the optimal design of a risk adjustment scheme in competitive health insurance markets when insurers have better information on their customers' risk profiles than the sponsor of health insurance. The sponsor offers insurers a menu of risk adjustment schemes to elicit this information. The optimal scheme includes a voluntary reinsurance option. Additionally, the scheme should sometimes be complemented by a community rating requirement. The resulting inefficient coverage of low-cost types lowers the sponsor's cost of separating different insurer types. This allows the sponsor to redistribute more rents from low-cost to high-cost consumers.

Keywords: Cherry picking; Health insurance; Mechanism design; Risk adjustment (search for similar items in EconPapers)
JEL-codes: D02 D47 I13 (search for similar items in EconPapers)
Date: 2015-11
New Economics Papers: this item is included in nep-hea and nep-ias
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Related works:
Working Paper: Community Rating in Health Insurance: Trade-Off Between Coverage and Selection (2015)
Working Paper: Community Rating in Health Insurance: Trade-Off Between Coverage and Selection (2015)
Working Paper: Community Rating in Health Insurance: Trade-Off Between Coverage and Selection (2015)
Working Paper: Community Rating in Health Insurance: Trade-Off Between Coverage and Selection (2015)
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