Article thumbnail

Sources of Advantageous Selection: Evidence from the Medigap Insurance Market

By Hanming Fang, Michael P. Keane and Dan Silverman


We find strong evidence for advantageous selection in Medigap insurance market. Using Medicare Current Beneficiary Survey (MCBS) data, we regress total medical expenditure on medigap status and other controls. We find that (1) if we only use gender, age and State (three variables used in the pricing of Medigap), then those with Medigap incur about $4,000 less in total medical expenditure than those without Medigap; (2) however, if we add controls for observable health variables, then those with Medigap spend about $2000 more than those without Medigap. The only way to rationalize the two results is that those with better health are more likely to purchase supplemental coverage. We interpret this as strong evidence of “advantageous selection.” We then combine MCBS and Health and Retirement Study (HRS) to investigate the sources of advantageous selection. We find that advantageous selection has multiple sources: besides the usual suspect of risk aversion, we find that cognition, income, education, and longevity expecation all contribute to advantageous selection

Topics: Asymmetric Information, Medigap Insurance, Adverse Selection, Advantageous Selection, Moral Hazard
Year: 2005
OAI identifier: oai:CiteSeerX.psu:
Provided by: CiteSeerX
Download PDF:
Sorry, we are unable to provide the full text but you may find it at the following location(s):
  • (external link)
  • (external link)
  • Suggested articles

    To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.