Competition among differentiated health plans under adverse selection

Market power and adverse selection are prevalent features of the market for pre-paid health plans. However, most of the literature on adverse selection considers extreme cases: either perfect competition or monopoly. If instead health plans are horizontally differentiated, then (i) profits derived f...

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Bibliographic Details
Published in:Journal of health economics 2007-03, Vol.26 (2), p.233-250
Main Authors: Olivella, Pau, Vera-Hernández, Marcos
Format: Article
Language:English
Subjects:
Adverse selection
Competition
Economic Competition
Health administration
Health economics
Health insurance
Health Maintenance Organizations
High risk
HMOs
Humans
Insurance Selection Bias
Managed care
Market power
Medical care
Models, Statistical
Pareto optimum
Pre-paid health plans
Profits
Studies
United States
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Summary:Market power and adverse selection are prevalent features of the market for pre-paid health plans. However, most of the literature on adverse selection considers extreme cases: either perfect competition or monopoly. If instead health plans are horizontally differentiated, then (i) profits derived from each low risk are higher than from each high risk and (ii) when the profits derived from each high risk are negative (cross-subsidization), a health authority as informed as the health plans can implement a Pareto-improvement. Both local and global deviations from cross-subsidization are addressed within a Nash equilibrium framework.
ISSN:0167-6296
1879-1646
DOI:10.1016/j.jhealeco.2006.08.002