The Research On The Behavior Of Advantageous Selection In Medical Insurance

Adverse selection problem in insurance market has been a important research topic in theory circle. Since the 1970 s, Akerlof, Spence, Stiglitz, Wilson, and many other scholars have analyzed the individual choice and market operation in the case of information asymmetry, it is concluded in theses that information asymmetry causes adverse selection: the high-risk groups expel the low risk groups out of the insurance market gradually. But recent research challenged this classic theory. Empirical studies have shown that in United States, Britain, China, France, Japan and other countries’ medical insurance, car insurance, life insurance and annuity markets, appeared advantageous selection phenomenon: low risk groups expel high risk groups out of the market. This kind of market behavior causes extensive attention among academic world. Traditional adverse selection theory does not mention the advantageous selection, then how to explain the causes? Compared with adverse selection, advantageous selection has totally opposite impact on market. Does that mean it would improve market efficiency and increase social welfare? Would the governance measures of information asymmetry under the traditional theory have desired effect on advantageous selection ? These problems become the focus of recent theoretical research.Taking medical insurance market as an example, this paper analyses the causes, the influences and the governance of advantageous selection in the insurance market. On the one hand, from the theoretical level, based on the reviewing of the traditional theory, this paper corrects the fixed hypothesis and analyses the causes of advantageous selection; Through the transformation of traditional theoretical analysis framework to market equilibrium, this paper discusses the characteristics of advantageous selection and it’s effects on social welfare, moreover, it puts forward the corresponding measures. From the empirical level, on the other hand, by using the data from the China’s medical insurance market, this paper constructs relative model test and measure index, tests the existence, the causes of advantageous selection and it’s impact on welfare. Specifically, this paper research content is as follows.First of all, this paper explains the traditional theory of adverse selection. The paper reviews the developing course of traditional theory by using it’s representative result, R- S model, reflects its theoretical assumptions, analyzes its framework and its research conclusion, and how they drew the conclusion of adverse selection. The research findings are as follows: On the one hand, the traditional theory is under these three assumptions: dimensional heterogeneity, policy-holder information advantage and fully assume risk classification. That’s to say, there only exist individual risk among insurance groups in insurance market, meanwhile, the policy holder has the advantage of individual risk information compared with the underwriter. On the other hand, assumptions under traditional theory necessarily lead to adverse selection. Under the conditions of above assumptions, risk becomes the only factor affecting contract selection and market operation. So, there appeared adverse selection in insurance market: high(low) risk groups select high(low) insurance contract.Secondly, this paper discusses the formation mechanism of advantageous selection in insurance market. This part corrected theoretical assumptions, probes the causes of advantageous selection, builds market equilibrium analysis framework, and discusses the features of advantageous selection. Research conclusions are as follows. First, the insurance market is characterized by multidimensional heterogeneity, two-way information superiority and the imperfect risk classification, combining the real market characteristics and the theoretical development requirements, traditional theoretical assumptions should be modified. Second, the correction of theory assumptions will lead to advantageous selection. In the case of a corrected theoretical assumptions, there will appears advantageous selection, influencing mechanism factors are heterogeneity, cognitive deviation, observable un-priced which affect insurance purchase behavior, and the results it that the insurance purchasers(non-insurance purchasers) are not high(low) risk groups respectively. Third, the characteristics of advantageous selection under the condition of market equilibrium. Based on the former academic achievements, this paper builds market equilibrium model of advantageous selection under the analysis framework of new classical economics, through the purchase intention and the deviation marginal cost to reflect the effects of correction of theory assumption, and we found that marginal cost curve slopes right upward, demand curve slopes right downward, the demand curve and the average cost curve intersection determine market equilibrium characteristics, which have great contrast compares with adverse selection market.Thirdly, this paper examines the causes and existence of advantageous selection in medical insurance market of China. By using the CHARLS data, this paper analyzes whether there is advantageous selection in China’s medical insurance and weather there is cognitive bias and risk preference heterogeneity and the corresponding advantageous selection. Research conclusions are as follows. First, there does exist advantageous selection in medical insurance market. Descriptive statistics found that the insured population’s health risk is lower than the uninsured population, dynamic insured group’s heath risk is lower than dynamic uninsured group. Moreover, there is a negative correlation relationship between insured group’s early risk and the degree of their insurance later, and so is the relationship between the risk and insurance in the same period. Second, there exist cognitive biases risk among insurance group’s, and which can lead to advantageous selection. By using QWB scale and corresponding index, this paper builds an individual health risk cognitive deviation index, and have found that medical insurance group tend to pessimistic cognitive state generally, cognitive biases averages-0.173. Regression analysis showed positive correlations between cognitive bias and health risk(health negative correlations), negative correlations between cognitive bias and insurance purchase, in which cognitive biases can reduce the degree of adverse selection, and generates advantageous selection. Third, the insured group have risk preference heterogeneity. Through the proportion of risky assets in total assets to measure risk preference, the paper found clear risk preference difference between the insured groups, and positive correlations between risk preference and health risk.Fourthly, this paper analyzes the influences of advantageous selection in insurance market on social welfare. By using the total social surplus analysis method, the paper analyzes the effects of advantageous selection upon social welfare, and uses CHARLS data to test it. Research conclusions are as follows. First, advantageous selection leads to the decrease in the total social welfare. Welfare loss due to "the not willing to cover insurance groups cover insurance", part of the high risk and low purchase intention groups won’t cover insurance under the condition of information symmetry, but the purchase of insurance under the condition of information asymmetry causes the decrease in the total social surplus. Second, the paper uses the CHARLS data to confirm above theory analysis. By using the CHARLS data simulation of medical insurance market in the state of information symmetry and asymmetry, calculating the corresponding total social surplus, the paper founds that risk cognitive biases reduce social total welfare, and the cause of the loss is due to some optimistic cognitive groups “ not willing to cover insurance but covered insurance”.Finally, this paper discusses the management measures of advantageous selection in insurance. Combining social welfare analysis way of thinking, the paper explores the management measures and it’s effect. The study found that, first, risk classification mechanism failed to work out in some groups in the process of governance; Second, compulsory insurance lead to the total decrease of social welfare in advantageous selection market, but it can avoid negative externalities; Third, the governance effect of tax subsidy policy in advantageous selection market is unknown, but it can avoid negative externalities.