Under the conditions conjectured by Rothschild and Stiglitz (1976) as leading to extreme market failure, we show the existence of a unique incentive-efficient equilibrium. In terms of its sensitivity to the structure of the buyer population, this equilibrium may be flexible or rigid. Closed-form illustrations of equilibria and the solution methodology, which is based on the characterization of Nash equilibrium in terms of selective efficiency (Faynzilberg, 2003), are also provided.
English summary: Auf privatwirtschaftlich organisierten Krankenversicherungsmarkten wird die Pramie entsprechend des individuellen Risikos erhoben. Verschlechtert sich der Gesundheitszustand einer Person, so besteht die Gefahr, dass die Pramie angehoben wird. Die Person sieht sich einer unsicheren Pramie gegenuber. Mathias Kifmann untersucht, wie dieses Pramienrisiko auf wettbewerblich organisierten Krankenversicherungsmarkten versichert werden kann. Drei grundsatzliche Moglichkeiten der Absicherung werden analysiert und verglichen. In einer vertiefenden theoretischen Analyse untersucht der Autor Reformmoglichkeiten der privaten und der gesetzlichen Krankenversicherung. German description: How can it be avoided that consumers face premium risk, i.e. increases in their premiums when their health status deteriorates? Mathias Kifmann examines how this problem which is a major challenge for private health insurance markets can be solved. Three principal ways to insure premium risk which preserve competition among health insurers are analyzed and compared. Guaranteed renewable contracts ensure premiums independent of changes in the health status by requiring a life-time commitment to an insurer. Premium insurance compensates an increase in premiums if the health status changes. Under community rating, the government rules out risk-based premiums by requiring that insurers set a uniform premium for all insured.Mathias Kifmann pays particular attention to the challenges posed by managed care. He argues that managed care can aggravate the lock-in problem under guaranteed renewable contracts. He demonstrates that an alternative contract is superior to guaranteed renewable contracts. This contract creates incentives for insurers to behave in the interest of consumers by specifying payments upon switching to another insurer. If insurers are community-rated, an important question is whether they should be allowed to offer managed care besides traditional health insurance. The author shows that managed care can be used as a pure risk-selection device under community rating. However, the introduction of managed care can also be to the benefit of everyone. To obtain such welfare gains, it may be necessary to tax some insurance plans and to subsidize others.
Economic and financial research on insurance markets has undergone dramatic growth since its infancy in the early 1960s. Our main objective in compiling this volume was to achieve a wider dissemination of key papers in this literature. Their significance is highlighted in the introduction, which surveys major areas in insurance economics. While it was not possible to provide comprehensive coverage of insurance economics in this book, these readings provide an essential foundation to those who desire to conduct research and teach in the field. In particular, we hope that this compilation and our introduction will be useful to graduate students and to researchers in economics, finance, and insurance. Our criteria for selecting articles included significance, representativeness, pedagogical value, and our desire to include theoretical and empirical work. While the focus of the applied papers is on property-liability insurance, they illustrate issues, concepts, and methods that are applicable in many areas of insurance. The S. S. Huebner Foundation for Insurance Education at the University of Pennsylvania's Wharton School made this book possible by financing publication costs. We are grateful for this assistance and to J. David Cummins, Executive Director of the Foundation, for his efforts and helpful advice on the contents. We also wish to thank all of the authors and editors who provided permission to reprint articles and our respective institutions for technical and financial support.
Leading international economists offer new insights on recent developments in theeconomic analysis of the limits of insurability, with particular attention of adverse selection andmoral hazard.
Risk Adjustment, Risk Sharing and Premium Regulation in Health Insurance Markets: Theory and Practice describes the goals, design and evaluation of health plan payment systems. Part I contains 5 chapters discussing the role of health plan payment in regulated health insurance markets, key aspects of payment design (i.e. risk adjustment, risk sharing and premium regulation), and evaluation methods using administrative data on medical spending. Part II contains 14 chapters describing the health plan payment system in 14 countries and sectors around the world, including Australia, Belgium, Chile, China, Columbia, Germany, Ireland, Israel, the Netherlands, Russia, Switzerland and the United States. Authors discuss the evolution of these payment schemes, along with ongoing reforms and key lessons on the design of health plan payment. - Provides a conceptual toolkit that describes the goals, design and evaluation of health plan payment systems in the context of policy paradigms, such as efficiency, affordability, fairness and avoidance of risk selection - Brings together international experience from many different countries that apply regulated competition in different ways - Delivers a practical toolkit for the evaluation of health plan payment modalities from the standpoint of efficiency and fairness
This book presents startling evidence that state monopolies can produce better outcomes than the free market. It provides an empirical comparison of the property insurance market in five European countries: Britain, Spain, France, Switzerland, and Germany. The market and cost structures of insurers in each country are described, and particular features of each market and the outcomes for customers examined. The regulatory frameworks vary widely from country to country and so do the market outcomes, both in terms of premium level and in terms of available insurance cover. In view of the increase in major floods and other forms of natural damage (such as subsidence) over the last decades, the non-availability of insurance cover in many competitive insurance systems is likely to become a major political issue. This book shows that state monopoly is an adequate policy response. Competitive insurance systems are shown to provide incomplete cover at a substantially higher cost. In mixed systems, where the private sector can obtain reinsurance from the state (such a system is being tried in France) the state tends to end up paying most of the costs (it reinsures most of the bad risks) while the private insurance companies keep most of the premium income. The book will be of interest to academic economists interested in privatization, regulation, the theory of the firm, and insurance; Policy-makers concerned with regulation and privatization; Insurance companies, regulators, and analysts.
