Selection and the competitive standing of health plans in a multiple-choice, multiple-insurer market

Abstract

Previous studies have determined that biased selection occurs in multiple-choice, multiple-insurer programs. To the extent that health plans are affected by biased selection, efficiency becomes less important since adverse selection may raise a particular plan's costs relative to those of its competitors. This study finds that both favorable and unfavorable selection deteriorate over time. Thus, not only may selection harm the competitive standing of individual plans, but it may also force these plans to withdraw from the market. With free entry, no plan is immune from fatal adverse selection.