Degree Year

2007

Document Type

Thesis - Open Access

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.

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