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Did Community Rating Induce an Adverse Selection Death Spiral? Evidencefrom New York, Pennsylvania and Connecticut

Thomas Buchmueller () and John DiNardo

No 6872, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Using data from the 1987 to 1996 March Current Population Surveys we find no evidence for the conventional wisdom' that the imposition of pure community rating leads to an adverse selection death spiral.' Specifically, the percentage of individuals in small groups covered by health insurance did not fall in New York (which enacted community rating legislation in 1993) relative to either Pennsylvania (which enacted no insurance reform) or Connecticut (which enacted moderate insurance reform without imposing community rating). Consistent with the predictions of the simple Rothschild and Stiglitz (1975) framework, however, we find that the New York reforms appear to have had a significant impact on the structure of the New York insurance market. Specifically, New York has experienced a dramatic shift away from indemnity insurance toward HMOs. While this shift took place during a period of nationwide increases in the percentage with managed care, the increase in HMO penetration in New York's small group and individual markets was significantly greater than in Pennsylvania or Connecticut.

JEL-codes: I11 I18 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hea
Date: 1999-01
Note: HE
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Published as Thomas Buchmueller & John Dinardo, 2002. "Did Community Rating Induce an Adverse Selection Death Spiral? Evidence from New York, Pennsylvania, and Connecticut," American Economic Review, American Economic Association, vol. 92(1), pages 280-294, March.

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