When Should There Be Vertical Choice in Health Insurance Markets?

95 Pages Posted: 19 Mar 2021

See all articles by Victoria Marone

Victoria Marone

The University of Texas at Austin; National Bureau of Economic Research (NBER)

Adrienne Sabety

Harvard University

Date Written: March 18, 2021

Abstract

We study the welfare effects of offering choice over coverage levels––“vertical choice”––in regulated health insurance markets. Though the efficient level of coverage, which trades off the value of risk protection and the social cost from moral hazard, likely varies across consumers, we emphasize that this variation alone is not sufficient to motivate choice. We show that vertical choice is efficient only if consumers with higher willingness to pay for insurance have a higher efficient level of coverage. Using administrative data from a large employer, we find that the welfare gains from vertical choice are either zero or economically small.

Keywords: risk protection, moral hazard, health insurance

JEL Classification: J82, G22, I13

Suggested Citation

Marone, Victoria and Sabety, Adrienne, When Should There Be Vertical Choice in Health Insurance Markets? (March 18, 2021). Available at SSRN: https://ssrn.com/abstract=3807444 or http://dx.doi.org/10.2139/ssrn.3807444

Victoria Marone (Contact Author)

The University of Texas at Austin ( email )

United States

HOME PAGE: http://www.victoriamarone.com

National Bureau of Economic Research (NBER)

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Adrienne Sabety

Harvard University

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Cambridge, MA 02138
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