Heterogeneity, Demand for Insurance, and Adverse Selection

Spinnewijn, Johannes

doi:10.1257/pol.20140254

Cited by 41 publications

(38 citation statements)

References 66 publications

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“…On the demand side, heterogeneity in the price elasticity of demand across drugs may not only reflect heterogeneity in moral hazard, but also in behavioral biases, information frictions, or adherence, thus making it more difficult reaching normative recommendation from observed choices (Baicker, Mullainathan, and Schwartzstein 2015; Handel and Kolstad 2015; Spinnewijn 2017). In our specific context of pharmaceutical drugs, normative analysis is further complicated by the fact that much of the social cost is in the research and development stage, and the marginal cost of an extra pill is much lower than the per-unit price charged by the manufacturer for the drug; as a result, unlike in the classic theory, co-insurance may be socially inefficient in the presence of moral hazard (Lakdawalla and Sood 2009).…”

Section: Discussionmentioning

confidence: 99%

Private Provision of Social Insurance: Drug-Specific Price Elasticities and Cost Sharing in Medicare Part D

Einav

Finkelstein

Polyakova

2018

American Economic Journal: Economic Policy

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We explore how private drug plans set cost-sharing in the context of Medicare Part D. While publicly-provided drug coverage typically involves uniform cost-sharing across drugs, we document substantial heterogeneity in the cost-sharing for different drugs within privately-provided plans. We also document that private plans systematically set higher consumer cost sharing for drugs or classes associated with more elastic demand; to do so we estimate price elasticities of demand across more than 150 drugs and across more than 100 therapeutic classes. We conclude by discussing the various channels that likely affect private plans’ cost-sharing decisions.

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Section: Discussionmentioning

confidence: 99%

Private Provision of Social Insurance: Drug-Specific Price Elasticities and Cost Sharing in Medicare Part D

Einav

Finkelstein

Polyakova

2018

American Economic Journal: Economic Policy

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“…Graphical Representation In line with Einav et al (2010b) and Spinnewijn (2015), the market equilibrium and corresponding welfare have a simple graphical representation. We can plot the demand curve D (P ) which orders individuals based on their willingness-to-pay and the corresponding marginal cost function M C(P ) = E P (c), average cost function AC (P ) = E ≥P (c) and (marginal) value function V (P ) = E P (v).…”

Section: Setupmentioning

confidence: 91%

“…17 Spinnewijn (2015) analyzes this sorting effect in depth and shows that under standard conditions the marginal friction value increases in the willingness-to-pay. Hence, it is more likely to be negative when a larger share of consumers buy insurance in equilibrium.…”

Section: Information Policiesmentioning

confidence: 99%

“…In this paper we develop a general theoretical model that builds on prior work [Einav et al (2010a), Spinnewijn (2015) and Veiga and Weyl (2015)] to investigate the interactions between demand and supply-side inefficiencies in health insurance markets, caused by choice frictions and adverse selection respectively. We use this framework to analyze the equilibrium and welfare implications of different policy interventions.…”

Section: Introductionmentioning

confidence: 99%

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Information Frictions and Adverse Selection: Policy Interventions in Health Insurance Markets

Handel¹,

Kolstad²,

Spinnewijn³

2015

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This paper develops and implements a general framework to study insurance market equilibrium and evaluate policy interventions in the presence of choice frictions. Friction-reducing policies can increase welfare by facilitating better matches between consumers and plans, but can decrease welfare by increasing the correlation between willingness-to-pay and costs, exacerbating adverse selection. We identify relationships between the underlying distributions of consumer (i) costs (ii) surplus from risk protection and (iii) choice frictions that determine whether friction-reducing policies will be on net welfare increasing or reducing. We extend the analysis to study how policies to improve consumer choices interact with the supply-side policy of risk-adjustment transfers and show that the effectiveness of the latter policy can have important implications for the effectiveness of the former. We implement the model empirically using proprietary data on insurance choices, utilization, and consumer information from a large firm. We leverage structural estimates from prior work with these data and highlight how the model's micro-foundations can be estimated in practice. In our specific setting, we find that friction-reducing policies exacerbate adverse selection, essentially leading to the market fully unravelling, and reduce welfare. Risk-adjustment transfers are complementary, substantially mitigating the negative impact of friction-reducing policies, but having little effect in their absence.

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“…The segmentation of the demand side of the insurance market by risk is also crucial because the companies with an indifferent attitude, which, according to literature, are supposed to dominate, function differently from the risk averse or risk preferring person (Pearcy and Smith, 2015;Rotschild and Stiglitz, 1976;Spinnewijn, 2017).…”

Section: (354) 2018mentioning

confidence: 99%

Neoclassical Approach to Traditional Business Insurance – Introduction to the Theory of Agricultural Insurance

Kulawik¹

2018

Zagadnienia Ekonomiki Rolnej

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Heterogeneity, Demand for Insurance, and Adverse Selection

Cited by 41 publications

References 66 publications

Private Provision of Social Insurance: Drug-Specific Price Elasticities and Cost Sharing in Medicare Part D

Private Provision of Social Insurance: Drug-Specific Price Elasticities and Cost Sharing in Medicare Part D

Information Frictions and Adverse Selection: Policy Interventions in Health Insurance Markets

Neoclassical Approach to Traditional Business Insurance – Introduction to the Theory of Agricultural Insurance

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