Minimum Standards and Insurance Regulation: Evidence from the Medigap Market

55 Pages Posted: 3 May 2002 Last revised: 21 May 2002

See all articles by Amy Finkelstein

Amy Finkelstein

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: May 2002

Abstract

This paper examines the consequences of imposing binding minimum standards on the market for voluntary private health insurance for the elderly. Theoretically, the effect of these standards on insurance coverage and on welfare is ambiguous. I find robust evidence of a substantial decline in insurance associated with the minimum standards. The central estimates suggest that the standards are associated with an 8 percentage point (25 percent) decrease in the proportion of the population with coverage in the affected market; I find no evidence of substitution to other, unregulated sources of insurance coverage. Additional evidence suggests that the minimum standards are also associated with reduced coverage of non-mandated benefits among the insured. The empirical results are most consistent with a model of the effect of minimum standards on insurance markets with adverse selection, and suggest that adverse selection exacerbates the potential for unintended negative consequences of minimum standards. The final section of the paper considers the welfare implications of the changes in risk bearing associated with the minimum standards. The results suggest that the imposition of these standards was, even under relatively conservative assumptions, welfare reducing on net.

Suggested Citation

Finkelstein, Amy, Minimum Standards and Insurance Regulation: Evidence from the Medigap Market (May 2002). NBER Working Paper No. w8917, Available at SSRN: https://ssrn.com/abstract=310464

Amy Finkelstein (Contact Author)

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