Pricing and Welfare in Health Plan Choice
M. Kate Bundorf
Stanford University - Department of Health Research And Policy; National Bureau of Economic Research (NBER)
Stanford University - Department of Economics; Stanford Graduate School of Business; National Bureau of Economic Research (NBER)
University of Chicago Booth School of Business; National Bureau of Economic Research (NBER)
NBER Working Paper No. w14153
Prices in government and employer-sponsored health insurance markets only partially reflect insurers' expected costs of coverage for different enrollees. This can create inefficient distortions when consumers self-select into plans. We develop a simple model to study this problem and estimate it using new data on small employers. In the markets we observe, the welfare loss compared to the feasible efficient benchmark is around 2-11% of coverage costs. Three-quarters of this is due to restrictions on risk-rating employee contributions; the rest is due to inefficient contribution choices. Despite the inefficiency, we find substantial benefits from plan choice relative to single-insurer options.
Number of Pages in PDF File: 53
Date posted: June 30, 2008
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