Adverse Selection and Inertia in Health Insurance Markets: When Nudging Hurts
Open accessAbstract
This paper investigates consumer inertia in health insurance markets, where adverse selection is a potential concern. We leverage a major change to insurance provision that occurred at a large firm to identify substantial inertia, and develop and estimate a choice model that also quantifies risk preferences and ex ante health risk. We use these estimates to study the impact of policies that nudge consumers toward better decisions by reducing inertia. When aggregated, these improved individual-level choices substantially exacerbate adverse selection in our setting, leading to an overall reduction in welfare that doubles the existing welfare loss from adverse selection. (JEL D82, G22, I13)
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- Authors
- Handel, B. R.
- Affiliations
- University of California, Berkeley (US)
- Corresponding author
- Handel, Benjamin R
- Venue
- American Economic Review
- Publisher
- American Economic Association
- Published
- 2013-12-01
- Volume
- 103
- Issue
- 7
- Pages
- 2643-2682
- ISSN
- 0002-8282 (ISSN-L)
- OpenAlex
- W1994153666
- Semantic Scholar
- a3e7ff4d383529b4c8228a3ab62636acefbc2669
- Cited by
- 707
- References
- 61
- Citations by year
- 2026: 29 · 2025: 47 · 2024: 40 · 2023: 70 · 2022: 49 · 2021: 71 · 2020: 45 · 2019: 63 · 2018: 63 · 2017: 73 · 2016: 44 · 2015: 67 · 2014: 24 · 2013: 15 · 2012: 7
- FWCI
- 36.13
- Type
- journal article
- Language
- en
- Open access
- green
- www.openicpsr.org
- Locations
- American Economic Review (publishedVersion)
- PubMed (publishedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- Topics
- Social Sciences › Decision Sciences › General Decision Sciences › Decision-Making and Behavioral Economics
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Healthcare Policy and Management
- Social Sciences › Business, Management and Accounting › Accounting › Financial Literacy, Pension, Retirement Analysis
- Keywords
- adverse selection, consumer inertia, health insurance market, nudging, risk preferences, welfare loss, employer-sponsored health insurance, choice models
- MeSH terms
- Consumer Behavior, Health Benefit Plans, Employee, Health Maintenance Organizations, Humans, Insurance, Health, Preferred Provider Organizations, Insurance Selection Bias
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