Journal of Health Economics--July 2000
This paper outlines a feasible employee premium contribution policy, which
would reduce the inefficiency associated with adverse selection when a limited
coverage insurance policy is offered alongside a more generous policy. The
"efficient premium contribution" is defined and is shown to lead to an efficient
allocation across plans of persons who differ by risk, but it may also
redistribute against higher risks. A simulation of the additional option of a
catastrophic health plan (CHP) accompanied by a medical savings account (MSA) is
presented. The efficiency gains from adding the MSA/catastrophic health
insurance plan (CHP) option are positive but small, and the adverse consequences
for high risks under an efficient employee premium are also
small.