Modeling Health Insurance Choices in “Competitive” Markets

Keane, Michael (2004): Modeling Health Insurance Choices in “Competitive” Markets.

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.

• Item Type: MPRA Paper
• Language: English
• 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
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C35 - Discrete Regression and Qualitative Choice Models ; Discrete Regressors ; Proportions; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search ; Learning ; Information and Knowledge ; Communication ; Belief ; Unawareness; H - Public Economics > H4 - Publicly Provided Goods > H44 - Publicly Provided Goods: Mixed Markets; H - Public Economics > H5 - National Government Expenditures and Related Policies > H51 - Government Expenditures and Health; I - Health, Education, and Welfare > I1 - Health > I11 - Analysis of Health Care Markets; I - Health, Education, and Welfare > I1 - Health > I13 - Health Insurance, Public and Private; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M3 - Marketing and Advertising > M31 - Marketing

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