Jump to ContentJump to Main Navigation
Principles in Health Economics and Policy$
Users without a subscription are not able to see the full content.

Jan Abel Olsen

Print publication date: 2009

Print ISBN-13: 9780199237814

Published to Oxford Scholarship Online: May 2010

DOI: 10.1093/acprof:oso/9780199237814.001.0001

Show Summary Details
Page of

PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2020. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 30 October 2020

Uncertainty and health insurance

Uncertainty and health insurance

(p.107) Chapter 7 Uncertainty and health insurance
Principles in Health Economics and Policy

Jan Abel Olsen

Oxford University Press

This chapter shows that there is a welfare gain from health insurance because people are risk averse with respect to the financial implications of the prospect of ill health. There are effectively two main types of asymmetric information related to health insurance: adverse selection, where the asymmetry occurs before the insurance contract is made; and moral hazard, where the asymmetry occurs after the contract is made. Two different bases are presented for pricing health insurance: individual rating and community rating. The arguments in favour of individual rating are: i) it offers consumers a choice of contracts; ii) people have financial incentives for healthy behaviour; and iii) there is no forced cross-subsidy, i.e. it is actuarially ‘fair’. The arguments against individual rating are: i) it involves adverse selection (market failure); ii) transaction costs are high due to false signalling of risks; and iii) access depends on income (‘unfair’). The simplest policy solution to adverse selection, high transaction costs, and unequal access is compulsory public insurance, to which we now turn. Exercises and suggested readings are included at the end of the chapter.

Keywords:   health care, health insurance, risk averse, welfare gain, adverse selection, moral hazard

Oxford Scholarship Online requires a subscription or purchase to access the full text of books within the service. Public users can however freely search the site and view the abstracts and keywords for each book and chapter.

Please, subscribe or login to access full text content.

If you think you should have access to this title, please contact your librarian.

To troubleshoot, please check our FAQs , and if you can't find the answer there, please contact us .