Sources of advantageous selection: Evidence from the medigap insurance market

Hanming Fang, Michael P. Keane, Dan Silverman

Research output: Contribution to journalArticle

172 Scopus citations

Abstract

We provide evidence of advantageous selection in the Medigap insurance market and analyze its sources. Conditional on controls for Medigap prices, those with Medigap spend, on average, $4,000 less on medical care than those without. But if we condition on health, those with Medigap spend $2,000 more. The sources of this advantageous selection include income, education, longevity expectations, and financial planning horizons, as well as cognitive ability. Conditional on all these factors, those with higher expected medical expenditures are more likely to purchase Medigap. Risk preferences do not appear as a source of advantageous selection; cognitive ability is particularly important.

Original languageEnglish (US)
Pages (from-to)303-350
Number of pages48
JournalJournal of Political Economy
Volume116
Issue number2
DOIs
StatePublished - Apr 1 2008

ASJC Scopus subject areas

  • Economics and Econometrics

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