Price Regulation in Secondary Insurance Markets

33 Pages Posted: 23 Dec 2004

See all articles by Jay Bhattacharya

Jay Bhattacharya

Stanford University - Center for Primary Care and Outcomes Research; National Bureau of Economic Research (NBER)

Dana P. Goldman

RAND Corporation; National Bureau of Economic Research (NBER)

Neeraj Sood

University of Southern California; National Bureau of Economic Research (NBER); RAND Corporation; University of Southern California - Schaeffer Center for Health Policy and Economics

Abstract

Secondary life insurance markets are growing rapidly. From nearly no transactions in 1980, a wide variety of similar products in this market has developed, including viatical settlements, accelerated death benefits, and life settlements and as the population ages, these markets will become increasingly popular. Eight state governments, in a bid to guarantee sellers a "fair" price, have passed regulations setting a price floor on secondary life insurance market transactions, and more are considering doing the same. Using data from a unique random sample of HIV+ patients, we estimate welfare losses from transactions prevented by binding price floors in the viatical settlements market (an important segment of the secondary life insurance market). We find that price floors bind on HIV patients with greater than 4 years of life expectancy. Furthermore, HIV patients from states with price floors are significantly less likely to viaticate than similarly healthy HIV patients from other states. If price floors were adopted nationwide, they would rule out transactions worth $119 million per year. We find that the magnitude of welfare loss from these blocked transactions would be highest for consumers who are relatively poor, have weak bequest motives, and have a high rate of time preference.

Suggested Citation

Bhattacharya, Jayanta and Goldman, Dana P. and Sood, Neeraj, Price Regulation in Secondary Insurance Markets. Journal of Risk and Insurance, Vol. 71, No. 4, pp. 643-675, December 2004. Available at SSRN: https://ssrn.com/abstract=632826

Jayanta Bhattacharya (Contact Author)

Stanford University - Center for Primary Care and Outcomes Research ( email )

Center for Health Policy
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Stanford, CA 94305-6019
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650-736-0404 (Phone)
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National Bureau of Economic Research (NBER)

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Dana P. Goldman

RAND Corporation ( email )

P.O. Box 2138
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United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Neeraj Sood

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

RAND Corporation ( email )

P.O. Box 2138
1776 Main Street
Santa Monica, CA 90407-2138
United States

University of Southern California - Schaeffer Center for Health Policy and Economics ( email )

635 Downey Way
Los Angeles, CA 90089-3333
United States

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