2)Bulk markups Bulk discounts-a lower per-unit price for a large purchase of a commodity Bulk markups-a higher per-unit price for large purchases of a commodity Insurance companies use bulk markups to protect themselves from risk customers who want a lot of insurance This is exactly what the Rothschild-Stiglitz model predicts Bhattacharya,Hyde and Tu-HealthEconomics
Bhattacharya, Hyde and Tu – Health Economics 2) Bulk markups Bulk discounts– a lower per-unit price for a large purchase of a commodity Bulk markups– a higher per-unit price for large purchases of a commodity Insurance companies use bulk markups to protect themselves from risk customers who want a lot of insurance This is exactly what the Rothschild-Stiglitz model predicts
3)Adverse selection death spiral Both frail and robust P=s10.000 individuals are pooled together Premium is average cost These customere do not These customers buy of people in the pool buy insurance insurance Frail types are indirectly X $0 $10.000 $20,000 subsidized by robust Robust types exit the pool,leaving only P=$15,000 unhealthy individuals Cycle repeats These customers Readjusted premium These customers will not buy insurance st训w面 Healthier types leave $10,000 s20.000 Bhattacharya,Hyde and Tu-HealthEconomics
Bhattacharya, Hyde and Tu – Health Economics 3) Adverse selection death spiral Both frail and robust individuals are pooled together Premium is average cost of people in the pool Frail types are indirectly subsidized by robust Robust types exit the pool, leaving only unhealthy individuals Cycle repeats Readjusted premium Healthier types leave
ADVERSE SELECTION IN HEALTH INSURANCE Ch 10 Adverse Selection in Real Markets
Ch 10 | Adverse Selection in Real Markets ADVERSE SELECTION IN HEALTH INSURANCE