365体育网站

Encyclopedia of Gerontology and Population Aging

Living Edition
| Editors: Danan Gu, Matthew E. Dupre

Adverse Selection and Long-Term Care

  • Jane E. RuseskiEmail author
  • Allyssa A. Wadsworth
Living reference work entry
DOI: http://doi.org/10.1007/978-3-319-69892-2_996-1
  • 15 Downloads

Definition

Adverse selection occurs in situations where market participation is impacted by asymmetric information, when one party has more information than the other. It is most common in health economics when analyzing insurance markets, like Medigap, and long-term care. Here, adverse selection is when the buyer has more information about their health risks and risk preferences than the seller.

Overview

As indicated by the definition, adverse selection in an insurance market (see “Health Insurance”) occurs when the buyer has health risks and risk preferences that are unknown to the seller. Generally, the individual’s health risks and risk preferences are high, and he purchases insurance knowing the seller in uninformed. An example of adverse selection is when an individual works at a high-risk job, like logging, and purchases health insurance knowing they have a higher probability of being injured. Here the individual has more knowledge about their risk preferences than the...

This is a preview of subscription content, log in to check access.

References

  1. Akerlof GA (1978) The market for lemons: quality uncertainty and the market mechanism. In: Diamond O, Rothschild M (eds) Uncertainty in economics. Elsevier, pp 235–251.  
  2. Brown JR, Finkelstein A (2007) Why is the market for long-term care insurance so small? J Public Econ 91(10):1967–1991.  
  3. Brown JR, Finkelstein A (2011) Insuring long-term care in the United States. J Econ Perspect 25(4):119–142.  
  4. Browne MJ, Doerpinghaus H (1994) Asymmetric information and the demand for medigap insurance. Inquiry 31(4):445–450
  5. Dardanoni V, Donni PL (2012) Incentive and selection effects of medigap insurance on inpatient care. J Health Econ 31(3):457–470.  
  6. Ettner SL (1997) Adverse selection and the purchase of medigap insurance by the elderly. J Health Econ 16(5):543–562.  
  7. Finkelstein A (2004) Minimum standards, insurance regulation and adverse selection: evidence from the medigap market. J Public Econ 88(12):2515–2547.  
  8. Finkelstein A, McGarry K (2003) Private information and its effect on market equilibrium: new evidence from long-term care insurance. National Bureau of Economic Research Working Paper 99957.  
  9. Finkelstein A, McGarry K (2006) Multiple dimensions of private information: evidence from the long-term care insurance market. Am Econ Rev 96(4):938–958.  
  10. Finkelstein A, McGarry K, Sufi A (2005) Dynamic inefficiencies in insurance markets: evidence from long-term care insurance. Am Econ Rev 95(2):224–228.  
  11. Hagen S (2004) Financing long-term care for the elderly. Congressional Budget Office Paper
  12. Hagen S (2013) Rising demand for long-term services and supports for elderly people. Congressional Budget Office Paper
  13. Handel BR (2013) Adverse selection and inertia in health insurance markets: when nudging hurts. Am Econ Rev 103(7):2643–2682.  
  14. Hurd MD, McGarry K (1997) Medical insurance and the use of health care services by the elderly. J Health Econ 16(2):129–154.  
  15. Keane M, Stavrunova O (2016) Adverse selection, moral hazard and the demand for medigap insurance. J Econ 190(1):62–78.  
  16. Nguyen V (2017) Long-term support and services fact sheet. AARP Public Policy Institute 27R
  17. Oster E, Shoulson I et al (2010) Genetic adverse selection: evidence from long-term care insurance and Huntington disease. J Public Econ 94(11–12):1041–1050
  18. Pauly MV (1986) Taxation, health insurance, and market failure in the medical economy. J Econ Lit 24(2):629–675.  
  19. Pauly MV (1990) The rational nonpurchase of long-term-care insurance. J Polit Econ 98(1):153–168.  
  20. Sloan F, Norton EC (1997) Adverse selection, bequests, crowding out, and private demand for insurance: evidence from the long-term care insurance market. J Risk Uncertain 15(3):201–219.  

Copyright information

© Springer Nature Switzerland AG 2019

Authors and Affiliations

  1. 1.Department of EconomicsWest Virginia UniversityMorgantownUSA

Section editors and affiliations

  • Karen L. Fortuna
    • 1
  • Nazmi Sari
    • 2
  1. 1.Geisel School of MedicineDartmouth CollegeHanoverUSA
  2. 2.Department of EconomicsUniversity of SaskatchewanSaskatoonCanada