One pool to insure them all? Age,risk and the price(s) of medical insurance |
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| Institution: | 1. University of Southern California, Department of Otolaryngology - Head and Surgery, 2016-2017 Pediatric Otolaryngology Head & Neck Surgery Fellow at University of North Carolina, United States;2. University of Texas Health San Antonio, Department of Otolaryngology - Head and Neck Surgery, United States;1. University Bonn, Department of Economics, Institute for Microeconomics, Adenauer Allee 24-42, D-53113 Bonn, Germany;2. Humboldt-Universität zu Berlin, Institute for Economic Theory 1, Spandauer Str. 1, D-10178 Berlin, Germany;1. Department of Histopathology, St Richards Hospital, Chichester;2. Department of Maxillofacial Surgery, St Richards Hospital, Chichester;1. Sir Charles Gairdner Hospital, Perth, WA, Australia;2. Dermatopathology Group, Department of Anatomical Pathology, PathWest, Perth, WA, Australia;3. Division of Pathology and Laboratory Medicine, Medical School, University of Western Australia, Perth, WA, Australia;1. Faculty of Industrial Engineering and Management, Technion – Israel Institute of Technology, Israel;2. School of Computer Science and Engineering, The Hebrew University, Jerusalem, Israel |
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| Abstract: | Asymmetric information can lead to adverse selection and market failure. In a dynamic setting, asymmetric information also limits reclassification risk. This certainty offsets the costs of adverse selection. Using a dynamic model of endogenous insurance choice and price calibrated to the U.S. medical insurance market, I find that asymmetric information is Pareto improving when information is fully asymmetric. However, when insurers can discriminate by age group, but not within age groups, the young benefit by paying less for insurance. The insurance market for the near elderly collapses because it is no longer implicitly subsidized by the participation of the young. |
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