Introduction to the 2010 Special Issue of JRI on Health Insurance

Abstract

We are pleased to publish this special issue on health insurance, which coincides with a wave of health care reform in the United States. The debate over health care reform is much broader than the insurance coverage of health services, although health insurance is an important financing tool that affects many market participants. In fact, health insurance introduces, among other things, distortions in resource allocation by increasing access to health, by modifying the demand for and the supply of health care services, by changing individuals' incentives for health prevention, by affecting worker absenteeism and productivity, by increasing the financial obligations of firms, and by smoothing consumption over time. Scott Harrington proposes a comprehensive overview of the U.S. health care reform (as of early December 2009) with a focus on health insurance. His article presents the three main motivations for the reform: (1) high and rising annual growth of per capita expenditures in health expenditures not necessarily leading to a higher average quality of health for the population, (2) lack of access to insurance coverage of about 48 million residents, and (3) Medicare deficit and Medicaid cost growth. The author outlines the health care reform bills in the U.S. House and Senate, including the key provisions for expanding and regulating health insurance, and projections of the proposals' costs, funding, and impact on the number of people with insurance. The article also discusses other issues related to the reform: (1) the potential effects of mandated health insurance in conjunction with proposed premium subsidies and health insurance underwriting and rating restrictions, (2) the proposed creation of a public health insurance plan, and (3) provisions that would modify permissible grounds for health policy rescission and that would repeal the limited antitrust exemption for health and medical liability insurance. It concludes by contrasting the reform bills with market-oriented proposals and an outlook on future developments. The remainder of the special issue comprises analyses of health insurance issues that will continue to hold whatever the chosen reform. One important research question is the effect of asymmetric information on the functioning of insurance markets and particularly on health insurance. Alma Cohen and Peter Siegelman review the empirical literature on adverse selection in insurance markets. They focus on empirical tests of the basic prediction of adverse selection, namely, that policyholders that purchase more insurance coverage tend to be riskier. They observe that when such a correlation exists, it varies across insurance markets and pools of insurance policies. They discuss various reasons why a coverage--risk correlation may not be found in some markets. The presence of a positive coverage-risk correlation can also be explained by moral hazard, and the authors discuss methods for distinguishing moral hazard from adverse selection. Finally, they analyze how learning by policyholders and insurers can affect conclusions about the presence of asymmetric information in insurance markets. The next three articles deal with health care spending but do not analyze asymmetric information in detail, although this problem may be present in their data. Anthony T. Lo Sasso, Lorens A. Helmchen, and Robert Kaestner use a unique data set from an insurer to analyze the effects of consumer-directed health plans on health care spending. They conclude that the marginal dollar contributed by the employer to the spending account is entirely spent on outpatient and pharmacy services. In contrast, out-of-pocket spending is not responsive to the amount the employer contributes to the spending account. The magnitudes of the effects suggest important health care spending consequences of higher employer contributions to spending accounts. Their findings could be explained in part by moral hazard. Employers may offer employees a choice of health plans either to promote competition among plans or to better cater to employees' preferences for different types of products. …