Modeling Health Insurance Choices in “Competitive” Markets

Michael Keane ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper describes how state-of-the-art methods of choice modeling can be used to analyze consumer choice behavior in "competitive" health insurance markets. I use the insurance choices of senior citizens in the U.S. as an example. I then consider the issue of whether consumers benefit when we create more choice by letting private firms offer health insurance in competition with government. The usual "choice is good" argument fails in this context for two reasons: (i) adverse selection, and (ii) empirical results show that consumers are very confused about their health insurance options. Thus, I argue, consumers may be better served if a single payer offers a simple menu of insurance options. If government were to use market research tools to design that menu, consumers would still have scope for welfare enhancing choices.

Keywords: health insurance; choice modeling; Medicare; Medigap; HMO; managed care; adverse selection; cherry picking; risk adjustment; provider choice; heterogeneous logit model; stated preference data; moral hazard (search for similar items in EconPapers)
JEL-codes: C35 D82 D83 H44 H51 I11 I13 M31 (search for similar items in EconPapers)
Date: 2004
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:55198

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