Description/Abstract
When an individual's health status is observable, but evolving over time, the key to maintaining a successful health insurance arrangement is to have the healthier members of the group cross-subsidize those who experience adverse health outcomes. We argue that impediments to worker mobility may serve to mitigate the attrition of healthy individuals from employer-sponsored insurance pools, thereby creating a de facto commitment mechanism that allows for more complete insurance of health risks than would be possible in the absence of such frictions. Using data on health insurance contracts obtained from the 1987 National Medical Expenditure Survey, we find that the quantity of insurance provided, as measured by lifetime limits on benefits and annual stop-loss amounts, is positively related to the degree of worker commitment. These results illustrate the importance of commitment in the design of long-term contracts, and provide an additional rationale for the practice of bundling health insurance with employment.
Document Type
Working Paper
Date
2002
Keywords
Employment-based health insurance, health insurance, 1987 National Medical Expenditure Survey
Language
English
Series
Working Papers Series
Disciplines
Labor Economics
Recommended Citation
Crocker, Keith J. and Moran, John R., "Contracting with Limited Commitment: Evidence from Employment-Based Health Insurance Contracts" (2002). Center for Policy Research. 113.
https://surface.syr.edu/cpr/113
Source
Metadata from RePEc
Creative Commons License
This work is licensed under a Creative Commons Attribution 3.0 License.
Additional Information
Harvest from RePEc at http://repec.org