NBER Working Papers and Publications
|July 2004||Adverse Selection and the Challenges to Stand-Alone Prescription Drug Insurance|
with Mark V. Pauly
in Frontiers in Health Policy Research, Volume 7, David M. Cutler and Alan M. Garber, editors
|May 2004||Death Spiral or Euthanasia? The Demise of Generous Group Health Insurance Coverage|
with Mark V. Pauly, Olivia Mitchell: w10464
Employers must determine which sorts of healthcare insurance plans to offer employees and also set employee premiums for each plan provided. Depending on how they structure the premiums that employees pay across different healthcare insurance plans, plan sponsors alter the incentives to choose one plan over another. If employees know they differ by risk level but premiums do not fully reflect these risk differences, this can give rise to a so-called "death spiral" due to adverse selection. In this paper use longitudinal information from a natural experiment in the management of health benefits for a large employer to explore the impact of moving from a fixed dollar contribution policy to a risk-adjusted employer contribution policy. Our results suggest that implementing a significant ris...
Published: Pauly, Mark, Olivia Mitchell, and Peter Zeng. “Death Spiral or Euthanasia? The Demise of Generous Group Health Insurance Coverage.” Inquiry 44, 4 (Winter 2007): 412-427.
|August 2003||Adverse Selection and the Challenges to Stand-Alone Prescription Drug Insurance|
with Mark V. Pauly: w9919
This paper investigates a possible predictor of adverse selection problems in unsubsidized stand-alone' prescription drug insurance: the persistence of an individual's high spending over multiple years. Using MEDSTAT claims data and data from the Medicare Survey of Current Beneficiaries, we find that persistence is much higher for outpatient drug expenses than for other categories of medical expenses. We then use these estimates to develop a simple and intuitive model of adverse selection in competitive insurance markets and show that this high relative persistence makes it unlikely that unsubsidized drug insurance can be offered for sale, even with premiums partially risk adjusted, without a probable adverse selection death spiral. We show that this outcome can be avoided if drug coverag...