Sources of Advantageous Selection: Evidence from the Medigap                     Insurance Market

Fang, Hanming; Keane, Michael P.; Silverman, Dan

doi:10.1086/587623

Cited by 387 publications

(301 citation statements)

References 53 publications

Supporting

Mentioning

284

Contrasting

Order By: Relevance

“…Indeed, recent empirical work has documented substantial preference heterogeneity in different insurance markets, including automobile insurance (Cohen and Einav, 2007), reverse mortgages (Davidoff and Welke, 2007), health insurance (Fang, Keane, and Silverman, 2008), and long-term care insurance (Finkelstein and McGarry, 2006). The existence of unobserved preference heterogeneity opens up the possibility of advantageous selection, which produces opposite results to the adverse selection results just discussed.…”

Section: Adverse and Advantageous Selection: A Graphical Frameworkmentioning

confidence: 99%

“…Finkelstein and McGarry (2006) document advantageous selection in the market for long-term care insurance and provide evidence that more cautious individuals invest more in precautionary behavior and are less likely to use a nursing home, but at the same time are more likely to purchase long-term care insurance. Fang, Keane, and Silverman (2008) document advantageous selection in the market for Medi-gap coverage, which provides private health insurance that supplements Medicare for the elderly, but show that in the case of Medi-gap, cognition may be the driving force: individuals with higher cognitive ability are often able to make better decisions, which can translate into both greater coverage and at the same time lower health care expenditures.…”

Section: Adverse and Advantageous Selection: A Graphical Frameworkmentioning

confidence: 99%

See 1 more Smart Citation

Selection in Insurance Markets: Theory and Empirics in Pictures

Einav

Finkelstein

2011

Journal of Economic Perspectives

238

View full text Add to dashboard Cite

Government intervention in insurance markets is ubiquitous and the theoretical basis for such intervention, based on classic work from the 1970s, has been the problem of adverse selection. Over the last decade, empirical work on selection in insurance markets has gained considerable momentum. This research finds that adverse selection exists in some insurance markets but not in others. And it has uncovered examples of markets that exhibit "advantageous selection"—a phenomenon not considered by the original theory, and one that has different consequences for equilibrium insurance allocation and optimal public policy than the classical case of adverse selection. Advantageous selection arises when the individuals who are willing to pay the most for insurance are those who are the most risk averse (and so have the lowest expected cost). Indeed, it is natural to think that in many instances individuals who value insurance more may also take action to lower their expected costs: drive more carefully, invest in preventive health care, and so on. Researchers have taken steps toward estimating the welfare consequences of detected selection and of potential public policy interventions. In this essay, we present a graphical framework for analyzing both theoretical and empirical work on selection in insurance markets. This graphical approach provides both a useful and intuitive depiction of the basic theory of selection and its implications for welfare and public policy, as well as a lens through which one can understand the ideas and limitations of existing empirical work on this topic.

show abstract

Section: Adverse and Advantageous Selection: A Graphical Frameworkmentioning

confidence: 99%

Section: Adverse and Advantageous Selection: A Graphical Frameworkmentioning

confidence: 99%

Selection in Insurance Markets: Theory and Empirics in Pictures

Einav

Finkelstein

2011

Journal of Economic Perspectives

238

View full text Add to dashboard Cite

show abstract

“…Thus there is not a severe adverse selection in insurance market [18-20]. In addition, some studies revealed that there exists a positive selection in insurance market [21,22]. Then, how health status influences insurance enrollment rate in the market of the URBMI and the NCMS is a problem that needs to be studied in the further researches.…”

mentioning

confidence: 99%

Age or health status: which influences medical insurance enrollment greater?

Cai

et al. 2016

Journal of Global Health

View full text Add to dashboard Cite

BackgroundThe New Cooperative Medical Scheme (NCMS) for peasantries implemented in 2003 and the Urban Resident Basic Medical Insurance (URBMI) for the urban unemployed implemented in 2007 have many similarities. They both apply the financing mode of individual premiums plus government’s subsidies, and the voluntary enrollment. The Chinese government plans to integrate these two systems and build a unified basic medical insurance system for the unemployed in order to achieve the medical equity and increase the general health level. Thus, to analyze the main influencing factors of the enrollment of the urban unemployed and rural residents is very important for improving the system and securing the stability of the system during the transition.MethodsThe study uses data from the China Health and Nutrition Survey (CHNS) and adopts logistic regression models to test which factors influence the enrollment of the URBMI and the NCMS under the background of rather high enrollment rate of Chinese basic medical insurances and strong fiscal support of the Chinese government, especially whether health status or age influences enrollment of these two insurances greater.ResultsThere is indeed some adverse selection in the URBMI and the NCMS. Whether the individual has chronic diseases have significant influence on enrollments of both the urban unemployed and rural residents, while whether the individual got ill in last four weeks just influences enrollments of the urban unemployed. Age influences enrollment greater than health status. The older the insured are, the larger the enrollment rates are.ConclusionBecause of the active support for basic medical insurances of the Chinese government, the enrollment performance of the urban unemployed and rural residents has already changed. When implementing the new policy, the government should pay attention to the willingness to enroll in and the change of enrollment performance of the insured. Therefore, under the policy of voluntary enrollment, every coordinated province and city should enlarge the proportion of young people to insuring group, optimizing the age structure, and the financing proportion of governments and individuals should be measured properly. With the increasing of governments’ subsidies, the proportion of individual’s premiums should also be increased.

show abstract

“…Existing explanations for the oft-absence of adverse selection focus on preference heterogeneity (see Finkelstein and McGarry [2006] in LTC, Fang et al [2008] in Medigap, and Cutler et al [2008] for a broader focus across five markets). At a high level, these papers suggest that in some contexts the higher risk (e.g.…”

Section: Discussionmentioning

confidence: 99%

“…For Medigap, Fang et al [2008] find evidence of advantageous selection based on observables: individuals with observable health conditions are less likely to purchase Medigap insurance, despite having higher expected costs. However, their analysis not address the potential that rejections by Medigap insurers drive the lower ownership amongst those with observable health conditions.…”

mentioning

confidence: 97%

Private Information and Insurance Rejections

2013

Econometrica

164

View full text Add to dashboard Cite

Across a wide set of non-group insurance markets, applicants are rejected based on observable, often high-risk, characteristics. This paper argues that private information, held by the potential applicant pool, explains rejections. I formulate this argument by developing and testing a model in which agents may have private information about their risk. I first derive a new no-trade result that theoretically explains how private information could cause rejections. I then develop a new empirical methodology to test whether this no-trade condition can explain rejections. The methodology uses subjective probability elicitations as noisy measures of agents beliefs. I apply this approach to three non-group markets: long-term care, disability, and life insurance. Consistent with the predictions of the theory, in all three settings I find significant amounts of private information held by those who would be rejected; I find generally more private information for those who would be rejected relative to those who can purchase insurance; and I show it is enough private information to explain a complete absence of trade for those who would be rejected. The results suggest private information prevents the existence of large segments of these three major insurance markets.

show abstract

Sources of Advantageous Selection: Evidence from the Medigap Insurance Market

Cited by 387 publications

References 53 publications

Selection in Insurance Markets: Theory and Empirics in Pictures

Selection in Insurance Markets: Theory and Empirics in Pictures

Age or health status: which influences medical insurance enrollment greater?

Private Information and Insurance Rejections

Contact Info

Product

Resources

About