Incentive-compatible guaranteed renewable health insurance premiums

Pricing regulations in individual health insurance: Evidence from Medigap

I compare two pricing regulations that protect those with health conditions-"community rating," which requires insurers to charge uniform premiums, and "guaranteed renewal," which requires insurers to increase future premiums uniformly. Using individual-level Medigap data from 2006-2010, I compare individuals within 25 miles of borders between 3 community rating and 6 guaranteed renewal states. Relative to guaranteed renewal, community rating (with guaranteed issue) leads to a decrease in Medigap enrollment of 9.70 pp (29.7%), or 26.8-33.7% for low-spending conditions (diabetes, heart disease) and 21.9-29.9% for high-spending conditions (cancer, kidney disease); an increase in annual Medigap premiums of $276 (10.1%); a decrease in the likelihood of an earlier purchase of 7.99 pp (50.3%); and an increase in purchase delay of 1.08 years (17.0%).

Competitive long-term health insurance

I study the interplay among competition, contractual commitment, income risk, and saving and borrowing in insuring consumers against both short-term healthcare expenses and longer-term changes in health status. Examining different combinations of firms' ability to commit to long-term contracts, consumers' access to credit markets, and the availability of termination fees helps to highlight sources of inefficiency.

Hedging Medical Spending Growth: An Adaptive Expectations Approach

Long-term health insurance provides consumers with protection against persistent, negative health shocks. While the stochastic rise in medical spending growth may make some health risks harder to insure, financial assets could act as a hedge for medical spending growth risk. The purpose of this research was to determine whether such hedges exist. The results of this study were two-fold. First, the asset classes with the strongest statistical evidence as hedges were bonds, not stocks. Second, any strategy to hedge medical spending growth involved shorting assets i.e. betting against the bond or stock market. Health insurers writing long-term contracts should combine the use of hedges in the bond market with of portfolio diversification, and may benefit from health policies to moderate the uncertainty of medical spending growth.

Spillover effects of supplementary on basic health insurance: evidence from The Netherlands

Like many other countries, the Netherlands has a health insurance system that combines mandatory basic insurance with voluntary supplementary insurance. Both types of insurance are founded on different principles. Since basic and supplementary insurance are sold by the same health insurers, both markets may interact. This paper examines to what extent basic and supplementary insurance are linked to each other and whether these links generate spillover effects of supplementary on basic insurance. Our analysis is based on an investigation into supplementary health insurance contracts, underwriting procedures and annual surveys among 1,700-2,100 respondents over the period 2006-2009. We find that health insurers increasingly use a variety of strategies to enforce a joint purchase of basic and supplementary health insurance. Despite incentives for health insurers to use supplementary insurance as a tool for risk selection in basic insurance, we find limited evidence of supplementary insurance being used this way. Only a minority of health insurers uses health questionnaires when people apply for supplementary coverage. Nevertheless, we find that an increasing proportion of high-risk individuals believe that insurers would not be willing to offer them another supplementary insurance contract. We discuss several strategies to prevent or to counteract the observed negative spillover effects of supplementary insurance.

Death spiral or euthanasia? The demise of generous group health insurance coverage

Employers must determine the types of health care plans to offer and also set employee premiums for each plan provided. Depending on the structure of the employee share of premiums across different health insurance plans, the incentives to choose one plan over another are altered. If employees know premiums do not fully reflect the risk differences among workers, such pricing can give rise to a so-called "death spiral" due to adverse selection. This paper uses longitudinal information from a natural experiment in the management of health benefits for a large employer to explore the impact of moving from a fixed-dollar contribution policy to a partially risk-adjusted employer contribution policy. Our results show that implementing a significant risk adjustment had no discernable effect on adverse selection against the most generous indemnity insurance policy. This stands in stark contrast to previous studies, which have tended to estimate large impacts attributed to selection when employers move to a fixed-dollar policy from one with some risk adjustment. Further analysis suggests that previous studies, which appeared to detect plans in the throes of a death spiral, may instead have been reflecting an inexorable movement away from a non-preferred product, one that would have been inefficient for nearly all workers even in the absence of adverse selection.

Risk pooling and regulation: policy and reality in today's individual health insurance market

Analysis of new data on the relationship between and premiums and coverage in the individual insurance market and health risk shows that actual premiums paid for individual insurance are much less than proportional to risk, and risk levels have a small effect on obtaining coverage. States limiting risk rating in individual insurance display lower premiums for high risks than other states, but such rate regulation leads to an increase in the total number of uninsured people. The effect on risk pooling is small because of the large amount of risk pooling in unregulated individual insurance.

Lifetime cover in private insurance markets

In the last few decades, private health insurance rates have declined in many countries. In countries and states with community rating, a major cause is adverse selection. In order to address age-based adverse selection, Australia has recently begun a novel approach which imposes stiff penalties for buying private insurance later in life, when expected costs are higher. In this paper, we analyze Australia's Lifetime Cover in the context of a modified version of the Rothschild-Stiglitz insurance model (Rothschild and Stiglitz, 1976). We allow empirically-based probabilities to increase by age for low-risk types. The model highlights the shortcomings of the Australian plan. Based on empirically-based probabilities of illness, we predict that Lifetime Cover will not arrest adverse selection. The model has many policy implications for government regulation encouraging long-term health coverage.