Efficient Reinsurance in Health Insurance Markets
25 Pages Posted: 19 Sep 2017
Date Written: September 15, 2017
This paper studies a general, community-rated, private health insurance market. It proposes a government reinsurance scheme that discourages risk selection and promotes efficient competition. Under the proposed reinsurance scheme, the state provides insurance to insurers against losses caused by risk selection. The reinsurance 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, states and multidimensional heterogeneity even if single-crossing is not satisfied.
Keywords: health insurance, risk selection, reinsurance, efficiency
JEL Classification: D82, D86, I10, I13, I18
Suggested Citation: Suggested Citation