International Journal of Business and Economics Volume 4, No. 1 April​, 2005

Risk Signaling in the Health Insurance Market

Chu-Shiu Li

Department of Economics, Feng Chia University, Taiwan

Abstract

This paper analyzes equilibrium health insurance premium dependencies on signaling costs given individual health states, risk types, and risk type attributes. Since precise determination of an individual's premium is costly, insurers can categorize insureds based on relative screening costs. We show for two risk types, the equilibrium premium is either community-rated or risk-rated depending on screening costs. For multiple risk types, both policies may be concurrently available in equilibrium.

Keywords：adverse selection, separating equilibrium, pooling equilibrium, signaling costs.

JEL Classifications： G22, I11.

BACK