When Should There Be Vertical Choice in Health Insurance Markets?

We study the welfare effects of offering choice over coverage levels—“vertical choice”—in regulated health insurance markets. We emphasize that heterogeneity in efficient coverage level is not sufficient to motivate choice. When premiums cannot reflect individuals’ costs, it may not be in consumers’ best interest to select their efficient coverage level. We show that vertical choice is efficient only if consumers with higher willingness to pay have a higher efficient level of coverage. We investigate this condition empirically and find that as long as a minimum coverage level can be enforced, the welfare gains from vertical choice are either zero or economically small. (JEL D82, G22, H75, I13, I21)

Biden increases access to health insurance markets

Headline UNITED STATES: Greater access to health insurance

The COVID-19 Pandemic and Health Insurance Regulation

With projections of costs in the billions for COVID-19 treatments alone, and heightened scrutiny on COVID-19-related health insurance coverage, the National Association of Insurance Commissioners (NAIC) convened in March 2020 to discuss how the industry could best deal with a pandemic. While the ramifications of the COVID-19 event are in their infant stages, it is important to consider the implications such catastrophic risks have on an insurance market. We evaluate state-level changes presented by the NAIC in response to the COVID-19 pandemic and use prior research to offer insight into health insurance in a post-COVID-19 world. This manuscript aims to provide a summary of the NAIC’s current standing during the pandemic, while presenting insight into policy implications regarding regulation in health insurance markets during catastrophic events.