Working Paper: CEPR ID: DP7942
Authors: Jonneke Bolhaar; Maarten Lindeboom; Bas van der Klaauw
Abstract: This paper looks into the search behavior of consumers in the market for health insurance contracts. We consider the recent health insurance reform in The Netherlands, where a private-public mix of insurance provision was replaced by a system based on managed competition. Although all insurers offer the same basic package (determined by the government), there is substantial premium dispersion. We develop a simple consumer search model containing the main features of the Dutch health insurance system. This model provides us with a number of hypotheses, which we test using data from the Dutch Health Care Consumer Panel. The data confirm the standard predictions on consumer choice (i.e. there is adverse selection and a lower premium increases coverage). We also find that consumers with lower search costs are more likely to receive a group contract offer. This generates a situation of price discrimination where individuals without group contracts and higher search costs pay higher premiums and buy lower insurance coverage.
Keywords: adverse selection; consumer search; group contracts; health insurance; managed competition
JEL Codes: D82; D83; I18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Health status (I14) | Insurance choice (G52) |
| Premium levels (G22) | Insurance coverage (G52) |
| Search costs (G19) | Likelihood of receiving group contract (L14) |
| Likelihood of receiving group contract (L14) | Price discrimination (D40) |
| Health status (I14) | Insurance coverage (G52) |