Working Paper: NBER ID: w13817
Authors: Richard Frank; Karine Lamiraud
Abstract: The United States and other nations rely on consumer choice and price competition among competing health plans to allocate resources in the health sector. A great deal of research has examined the efficiency consequences of adverse selection in health insurance markets, less attention has been devoted to other aspects of consumer choice. The nation of Switzerland offers a unique opportunity to study price competition in health insurance markets. Switzerland regulates health insurance markets with the aim of minimizing adverse selection and encouraging strong price competition. We examine consumer responses to price differences in local markets and the degree of price variation in local markets. Using both survey data and observations on local markets we obtain evidence suggesting that as the number of choices offered to individuals grow their willingness to switch plans given a set of price dispersion differences declines allowing large price differences for relatively homogeneous products to persist. We consider explanations for this phenomenon from economics and psychology.
Keywords: health insurance; consumer choice; price competition
JEL Codes: I11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increase in choice set size (D87) | decrease in likelihood of switching plans (G52) |
| increase in price differentials (L11) | increase in likelihood of switching plans (G52) |
| longer tenure in current plan (C41) | decrease in likelihood of switching plans (G52) |