​Economics Seminar | Household Bundling to Reduce Adverse Selection: Application to Social Health Insurance​

All are welcome to attend the seminar.

This paper explores the use of bundling to reduce adverse selection in insurance markets and its application to social health insurance programs. When the choice to buy health insurance is made at the household level, bundling the insurance policies of household members eliminate the effect of adverse selection within a household since the household can no longer select only sick members to enrol. However, this can exacerbate adverse selection across households, as healthier households might choose to drop out of the insurance market. The net effect of this trade-off depends on the characteristics of the household demand for medical care and risk preferences. I explore this issue using individual survey data on insurance enrolment and medical spending in Vietnam that contain detailed information about the structure of the household. The reduced-form evidence suggests that income, own-price and cross-member substitution effects play important roles in the demand for medical care, which affects a household’s selection of members into insurance. I then develop and estimate a model of household insurance bundle choice and medical utilization that accounts for these features. The results suggest that much of the adverse selection is concentrated within the household. Counterfactual analysis reveals that under optimal pricing, household bundling yields significantly higher consumer surplus and insurance enrolment than individual purchase. Furthermore, the insurance market is less susceptible to complete unravelling under household bundling.

 

Ms Anh Nguyen is a Ph.D. candidate in the Department of Economics at Columbia University. She is also a fellow of the Becker Friedman Institute at the University of Chicago. Her research interest lies in the intersection of industrial organization and health economics. Her current work focuses on how government intervention could reduce inefficiency from asymmetrical information in the health insurance market.