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Community Rating in Health Insurance: Trade-Off between Coverage and Selection
Social Science Research Network
We analyze the role of community rating in the optimal design of a risk adjustment scheme in competitive health insurance markets when insurers have better information on their customers' risk profiles than the sponsor of health insurance. The sponsor offers insurers a menu of risk adjustment schemes to elicit this information. The optimal scheme includes a voluntary reinsurance option. Additionally, the scheme should sometimes be complemented by a community rating requirement. The resultingdoi:10.2139/ssrn.2692533 fatcat:u74ljzmbrfhelhgfe57ltdhqum