INFORMATION ASYMMETRIES, ADVERSE SELECTION, AND THE INDIVIDUAL HEALTH INSURANCE MARKET: ALTERNATIVE MECHANISMS FOR MANAGING THE COST OF PRIVATE INFORMATION (HEALTH INSURANCE, PRIVACY REGULATION).

摘要

This dissertation addresses the costs imposed upon an individual health insurance market (IHIM) when applicants for health coverage possess an information advantage over insurance providers; that is, this dissertation examines the social costs and allocative inefficiencies imposed upon a market by the presence of private information. This work explores a set of strategies that insurance companies can employ to mitigate these costs and to maximize the extent to which the population is insured, without affecting their profitability. This is done through examining alternative information endowments of consumers and individual health insurance providers that result from effects of the interaction of technology and regulation on the parties' information endowments; these alternative are termed information regimes. This work then examines the plausible pricing strategies and policy designs in order to assess which pricing strategy results in the greatest consumer participation in the insurance market. That is, for each information regime, we seek to determine the pricing strategy that comes closest to the full participation of our base case, which entails no private information. The methodology used to explore these issues is Industrial Dynamics, a simulation-based modeling technique.; This dissertation first considers an IHIM in which applicants for health coverage possess private information regarding their riskiness for a single medical condition. The results demonstrate two key findings; that is, insurance companies can increase consumer participation in the IHIM by: (1) allowing insurance providers to offer significant discounts for exclusions of coverage for certain medical conditions; (2) making information regarding individuals' riskiness public to insurance companies (and therefore permitting price discrimination).; These strategies encourage lower risk individuals to participate in the market without adversely affecting the coverage of, or premiums paid by, higher risk individuals.; The dissertation then considers a more complex market in which applicants possess private information regarding their riskiness for a large number of medical conditions. The findings demonstrate that insurance companies may be able to maximize consumer market participation in the IHIM despite the presence of extreme information asymmetries by having individuals' valuations for a large bundle of coverages converge to a single value; this is referred to as a bundling strategy. These findings have significant implications not only for the strategies implemented by insurance companies but also for regulatory policies implemented by government.