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Discussion Paper Details

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Title: Insurance Search and Switching Behavior

Author(s): Jonneke Bolhaar, Maarten Lindeboom and Bas van der Klaauw

Publication Date: August 2010

Keyword(s): Adverse selection, Consumer search, Group contracts, Health insurance and Managed competition

Programme Area(s): Public Economics

Abstract: This paper looks into the search behavior of consumers in the market for health insurance contracts. We consider the recent health insurance reform in The Netherlands, where a private-public mix of insurance provision was replaced by a system based on managed competition. Although all insurers offer the same basic package (determined by the government), there is substantial premium dispersion. We develop a simple consumer search model containing the main features of the Dutch health insurance system. This model provides us with a number of hypotheses, which we test using data from the Dutch Health Care Consumer Panel. The data confirm the standard predictions on consumer choice (i.e. there is adverse selection and a lower premium increases coverage). We also find that consumers with lower search costs are more likely to receive a group contract offer. This generates a situation of price discrimination where individuals without group contracts and higher search costs pay higher premiums and buy lower insurance coverage.

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Bibliographic Reference

Bolhaar, J, Lindeboom, M and van der Klaauw, B. 2010. 'Insurance Search and Switching Behavior'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=7942