Optimal Ex Post Risk Adjustment in Markets with Adverse Selection

29 Pages Posted: 19 Sep 2017 Last revised: 20 Feb 2019

See all articles by Anastasios Dosis

Anastasios Dosis

ESSEC Business School; University of Cergy-Pontoise - THEMA

Date Written: February 17, 2019


This paper studies general health insurance markets. It proposes an ex post risk adjustment scheme that discourages risk selection and promotes efficient competition. Under the proposed risk adjustment scheme, the regulator engages in transfers that are conditional on the ex post profits of insurers. The risk adjustment scheme is entirely budget balanced, as it does not call for government subsidies, and requires the regulator to hold minimal information to implement it. Equilibrium is shown to exist and be efficient in any environment with a finite number of types and states even if single-crossing is not satisfied.

Keywords: health insurance, risk selection, risk adjustment, efficiency

JEL Classification: D82, D86, I10, I13, I18

Suggested Citation

Dosis, Anastasios, Optimal Ex Post Risk Adjustment in Markets with Adverse Selection (February 17, 2019). Available at SSRN: https://ssrn.com/abstract=3037653 or http://dx.doi.org/10.2139/ssrn.3037653

Anastasios Dosis (Contact Author)

ESSEC Business School

3 Avenue Bernard Hirsch
B.P 50105
Cergy - Pontoise Cedex, NA 95021

University of Cergy-Pontoise - THEMA ( email )

33 boulevard du port
F-95011 Cergy-Pontoise Cedex, 95011

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