Essay on contracts in health insurance

The problem of private information is very acute in health insurance markets. The purchasers of insurance usually know more about their expected expenditures than the providers of insurance. Because of this asymmetry of information insurance companies have to increase premiums and often the insurers are not able to offer high quality health plans. In this dissertation, I consider two ways to deal with the negative consequences of this asymmetry: disclosure of medical information and exclusive insurance contracts. In the first chapter, I research the requirement for the employees to disclose their medical information to insurance companies. In the second chapter, I consider exclusive contracts between insurance companies and employers. These contracts restrict competition from other insurance companies and allow the exclusive insurance company to offer higher quality plans.;While many employers offer insurance plans that require disclosure of medical information to insurance companies, little research has focused on the employees' incentives associated with this disclosure decision or on the factors that influence this decision. This paper develops a model where healthier employees prefer to disclosure their medical information, whereas sicker employees do not. This separating equilibrium results in the disclosure plan having a lower premium than the non-disclosure plan (i.e. a disclosure discount). The magnitude of this discount depends on the turnover rate in the firm, the number of employees in a plan, and the waiting periods for the coverage of pre-existing conditions. Using a comprehensive survey of employers by the Robert Wood Johnson Foundation to quantify the disclosure discount and test what factors influence this discount, the paper finds that the average monthly out-of-pocket premium discounts for disclosure are ;Exclusive contracts between insurance companies and employers protect the status of insurance company as the only insurance provider to the employees in the firm. This protection allows cross-subsidization of insurance plans when employees in one health plan subsidize employees in another health plan. The protection also allows the insurance company to offer high quality plans that the company would not be able to offer in the absence of an exclusive contract. I use a comprehensive survey of employers by the Robert Wood Johnson Foundation to test these propositions. I find that firms with exclusive contracts offer lower premium for high quality plans and higher premiums for low quality plans, which suggest that these firms are subsidizing the high quality plans. In addition, I find that the firms with exclusive contracts are more likely to offer high quality plans.