Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

A Member of the Law Professor Blogs Network

Thursday, August 1, 2013

The Impact of a Public Option in the Health Insurance Market

Posted by D. Daniel Sokol

Andrei Barbos (Department of Economics, University of South Florida) and Yi Deng (Department of Economics, University of South Florida) analyze The Impact of a Public Option in the Health Insurance Market.

ABSTRACT: We develop a framework where to examine the implications of the introduction of a non- profit "public option" in the U.S. health insurance market. In this model, a continuum of heterogeneous consumers, each facing unknown medical expenditures, and differing in their expectations of such expenditures, have to choose between two competing plans. One plan is offered by a profit-maximizing private insurer; the other by social-welfare-maximizing public option. The model is calibrated based on data of U.S. medical expenditures and estimation of a Bayesian hierarchical model. The Nash Equilibrium of the resulting market structure is solved using a numerical algorithm. In equilibrium, the distinct objectives of the two insurers induce adverse selection in consumer choice: the public option covers the less healthy consumers, yielding the more profitable segment of market to the private insurer. However, our empirical results suggest that both insurers will capture significant parts of the health insurance market.

http://lawprofessors.typepad.com/antitrustprof_blog/2013/08/the-impact-of-a-public-option-in-the-health-insurance-market-.html

| Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341bfae553ef019104560a04970c

Listed below are links to weblogs that reference The Impact of a Public Option in the Health Insurance Market :

Comments

Post a comment