Degree Year

2007

Document Type

Thesis

Degree Name

Bachelor of Arts

Department

Economics

Advisor(s)

Kenneth Kuttner
Barbara Craig

Keywords

Healthcare, Insurance, Policies, Risk, Premiums, Legislation, Discrimination, Chronic

Abstract

In this paper, I analyze four alternative policies that address "premium risk": the risk that health insurance premiums will increase if an individual acquires a chronic condition. They are: premium risk insurance, community rating, anti-discrimination laws for large firms, and government subsidies. I show that community rating and anti-discrimination laws provide incomplete protection, and have the potential to create welfare-reducing distortions in incentives, while subsidies can be designed that mimic the efficiency of premium risk insurance. While the economic concepts behind these conclusions are well-documented and well-understood, I believe my own model adds value in the form of simplicity and ease of comparison. There is also an unambiguous policy implication: if we are concerned with premium risk, the complex legislation that has been introduced so far should be abandoned in favor of a new subsidy program.

Included in

Economics Commons

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