ERIC Number: EJ1393166
Record Type: Journal
Publication Date: 2023
Pages: 13
Abstractor: As Provided
ISBN: N/A
ISSN: ISSN-0022-0485
EISSN: EISSN-2152-4068
Adverse Selection and Risk Pooling in the Health Insurance Market: A Classroom Demonstration
Staveley-O'Carroll, James; Gai, Yunwei
Journal of Economic Education, v54 n3 p256-266 2023
The authors describe an asymmetric information demonstration that assigns students different probabilities of incurring healthcare expenses. In each round, students choose whether to purchase insurance; then, the instructor randomly determines who gets "sick." After computing insurer profits, students help determine a new insurance price to maximize future profit. Within three rounds, students recognize that the provider always incurs losses from adverse selection, opening a discussion of market failures pertaining to health insurance and asymmetric information. The experiment features idiosyncratic, but not systematic, risk as such; the same number of students get "sick" every round. Therefore, the instructor can straightforwardly demonstrate the benefits of risk pooling. The experiment is applicable to economic principles as well as intermediate courses in healthcare economics and microeconomic theory.
Descriptors: Risk, Economics Education, Health Insurance, Teaching Methods, Health Services, Microeconomics, Probability, Undergraduate Students, Federal Legislation
Routledge. Available from: Taylor & Francis, Ltd. 530 Walnut Street Suite 850, Philadelphia, PA 19106. Tel: 800-354-1420; Tel: 215-625-8900; Fax: 215-207-0050; Web site: http://www.tandf.co.uk/journals
Publication Type: Journal Articles; Information Analyses; Reports - Research
Education Level: Higher Education; Postsecondary Education
Audience: N/A
Language: English
Sponsor: N/A
Authoring Institution: N/A
Identifiers - Laws, Policies, & Programs: Patient Protection and Affordable Care Act 2010
Grant or Contract Numbers: N/A