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An R-Based Landscape Validation of a Competing Risk Model
Published on: September 16, 2022
Competition among differentiated health plans under adverse selection
Pau Olivella1, Marcos Vera-Hernández
1Department of Economics and CODE, Universitat Autònoma de Barcelona, 08193 Bellaterra, Spain.
Journal of Health Economics
|September 15, 2006
Summary
In prepaid health plans, horizontal differentiation creates profit disparities between low-risk and high-risk individuals. An informed health authority can improve outcomes by addressing cross-subsidization issues.
Area of Science:
- Health economics
- Market structure analysis
- Insurance market dynamics
Background:
- Adverse selection and market power significantly impact prepaid health plans.
- Existing research often simplifies market structures to perfect competition or monopoly.
Purpose of the Study:
- To analyze adverse selection in horizontally differentiated health plan markets.
- To investigate the implications of cross-subsidization for market efficiency and regulatory intervention.
Main Methods:
- Economic modeling of health insurance markets.
- Nash equilibrium analysis to study deviations from cross-subsidization.
- Examination of market power and information asymmetry.
Main Results:
- Profits are higher for low-risk individuals than for high-risk individuals.
- Cross-subsidization, where high-risk individuals generate negative profits, can be addressed.
- An informed health authority can achieve Pareto-improvements by managing deviations from cross-subsidization.
Conclusions:
- Horizontal differentiation in health plans creates unique challenges for adverse selection.
- Regulatory intervention, informed by market dynamics, can enhance welfare in health insurance markets.
- Nash equilibrium framework is crucial for understanding market stability and optimal policy.
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