NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Welfare Effects of Long-Term Health Insurance Contracts

Benjamin R. Handel, Igal Hendel, Michael D. Whinston

NBER Working Paper No. 23624
Issued in July 2017
NBER Program(s):Health Care, Industrial Organization, Public Economics

Reclassification risk is a major concern in health insurance. We use a rich dataset with individual-level information on health risk to empirically study one possible solution: dynamic contracts. Empirically, dynamic contracts with one-sided commitment substantially reduce the reclassification risk present with spot contracting, achieving close to the first-best for consumers with flat net income paths. Gains are smaller for consumers with net income growth, and these consumers prefer ACA-like community rating over dynamic contracts. However, lower risk aversion, sufficient switching costs, or government insurance of pre-age-25 health risks can raise welfare with dynamic contracts above the level in ACA-like markets.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

The NBER Bulletin on Aging and Health provides summaries of publications like this.  You can sign up to receive the NBER Bulletin on Aging and Health by email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w23624

Users who downloaded this paper also downloaded* these:
Frandsen, Powell, and Rebitzer w23177 Sticking Points: Common-Agency Problems and Contracting in the U.S. Healthcare System
Finkelstein, Mahoney, and Notowidigdo w23718 What Does (Formal) Health Insurance Do, and For Whom?
Duggan, Goda, and Jackson w23607 The Effects of the Affordable Care Act on Health Insurance Coverage and Labor Market Outcomes
Bairoliya, Karaca-Mandic, McCullough, and Petrin w23662 Consumer Learning and the Entry of Generic Pharmaceuticals
Finkelstein, Hendren, and Shepard w23668 Subsidizing Health Insurance for Low-Income Adults: Evidence from Massachusetts
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us