American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Unhealthy Insurance Markets: Search Frictions and the Cost and Quality of Health Insurance
American Economic Review
vol. 101,
no. 5, August 2011
(pp. 1842–71)
Abstract
We analyze the effect of search frictions in the market for commercial health insurance. Frictions increase insurance premiums (enough to transfer 13.2 percent of consumer surplus from fully insured employer groups to insurers—approximately $34.4 billion in 1997); and increase insurance turnover (by 64 percent for the average policy). This rent transfer harms consumers and—when combined with heightened turnover—reduces incentives to invest in future health. We also find that a publicly financed insurance option can improve the efficiency of private insurance markets by reducing search friction induced distortions in pricing and marketing efforts. (JEL D83 G22, I18)Citation
Cebul, Randall D., James B. Rebitzer, Lowell J. Taylor, and Mark E. Votruba. 2011. "Unhealthy Insurance Markets: Search Frictions and the Cost and Quality of Health Insurance." American Economic Review, 101 (5): 1842–71. DOI: 10.1257/aer.101.5.1842Additional Materials
JEL Classification
- D83 Search; Learning; Information and Knowledge; Communication; Belief
- G22 Insurance; Insurance Companies
- I18 Health: Government Policy; Regulation; Public Health