Risk-Revealing Contracts for Government-Sponsored Microinsurance in China
22 Pages Posted: 4 Feb 2019
Date Written: December 15, 2018
China’s Urban and Rural Residents’ Basic Medical Insurance (URRBMI) system recently was formed to integrate two prior-existing government health insurance programs for low income citizens: the New Cooperative Medical Scheme (for rural residents) and the Urban Residents’ Basic Medical Insurance system (for non-employee city dwellers). Like its two predecessors, the URRBMI is a voluntary, government microinsurance facility whose lack of underwriting procedures makes it vulnerable to adverse selection. To address this problem, we propose a practical contract mechanism that encourages each buyer to purchase a coverage amount that reveals his/her inherent risk level, for an actuarially fair price. Historical provincial-level data from the New Cooperative Medical Scheme are used to illustrate the proposed approach.
Keywords: Health Insurance, Microinsurance, Government Monopoly, Adverse Selection, Risk-Revealing Contract
JEL Classification: D53, G22, I13
Suggested Citation: Suggested Citation