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Unhealthy Insurance Markets: Search Frictions and the Cost and Quality of Health Insurance

Author

Listed:
  • Randall D. Cebul
  • James B. Rebitzer
  • Lowell J. Taylor
  • Mark E. Votruba
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)

Suggested Citation

  • Randall D. Cebul & James B. Rebitzer & Lowell J. Taylor & Mark E. Votruba, 2011. "Unhealthy Insurance Markets: Search Frictions and the Cost and Quality of Health Insurance," American Economic Review, American Economic Association, vol. 101(5), pages 1842-1871, August.
  • Handle: RePEc:aea:aecrev:v:101:y:2011:i:5:p:1842-71
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    More about this item

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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    1. Unhealthy Insurance Markets: Search Frictions and the Cost and Quality of Health Insurance (AER 2011) in ReplicationWiki

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