European Business Schools Librarian's Group

ESSEC Working Papers,
ESSEC Research Center, ESSEC Business School

No WP1903: Optimal Ex Post Risk Adjustment in Markets with Adverse Selection

Dosis Anastasios ()
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Dosis Anastasios: ESSEC Research Center, ESSEC Business School, Postal: ESSEC Research Center, BP 105, 95021 Cergy, France

Abstract: This paper studies general health insurance markets. It proposes an ex post risk adjustment scheme that discourages risk selection and promotes efficient competition. Under the proposed risk adjustment scheme, the regulator engages in transfers that are conditional on the ex post profits of insurers. The risk adjustment scheme is entirely budget balanced, as it does not call for government subsidies, and requires the regulator to hold minimal information to implement it. Equilibrium is shown to exist and be efficient in any environment with a finite number of types and states even if single-crossing is not satisfied.

Keywords: Risk adjustment; Efficiency; Risk selection; Health insurance

JEL-codes: D82; D86; I10; I13; I18

29 pages, February 2019

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