The Impact of a Public Option in the Health Insurance Market

Barbos, Andrei and Deng, Yi (2012): The Impact of a Public Option in the Health Insurance Market.

Abstract

We develop a game-theoretical model to examine the implications of the introduction of a non-profit "public option" in the U.S. health insurance market, in which a continuum of heterogeneous consumers, each facing unknown medical expenditures and differing in their expectations of such expenditures, have to choose between a profit-maximizing private insurance plan and a social-welfare-maximizing public plan. We then estimate and calibrate the model based on the U.S. data and quantify the Nash equilibrium of the market structure. Empirical results suggest that private insurer will still represent a significant part of the insurance market and generate a substantially positive profit.

• Item Type: MPRA Paper
• Language: English
• Keywords: Public Option; Health Insurance Markets
• Subjects: I - Health, Education, and Welfare > I1 - Health > I11 - Analysis of Health Care Markets; L - Industrial Organization > L3 - Nonprofit Organizations and Public Enterprise > L32 - Public Enterprises ; Public-Private Enterprises; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L21 - Business Objectives of the Firm; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L10 - General

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