Information technology and consumer search for health insurance

Mark V. Pauly, Bradley Herring, David Song

Research output: Contribution to journalArticlepeer-review

Abstract

We explore the impact of information technology on the level of premiums paid for individual health insurance by asking which kinds of buyers will have larger gains from the use of new technology. We compare 'asking price' data posted on an electronic insurance exchange with survey data on premiums actually paid before the advent of exchange and examine whether the pattern of differences between asking prices and transactions prices can be explained using a simple search theory. We hypothesize that older consumers, expecting to pay higher premiums for a given policy, had engaged in more intensive search than younger consumers, given the same distribution of prices and search costs. Therefore, the introduction of an electronic exchange that lowers the cost of search should have a larger effect on decreasing the level of premiums paid for those who previously searched less (i.e., younger consumers). We find evidence consistent with this hypothesis.

Original languageEnglish (US)
Pages (from-to)45-63
Number of pages19
JournalInternational Journal of the Economics of Business
Volume13
Issue number1
DOIs
StatePublished - Feb 2006
Externally publishedYes

Keywords

  • Consumer Search
  • Health Insurance
  • Information Technology
  • Price Dispersion

ASJC Scopus subject areas

  • Business, Management and Accounting (miscellaneous)
  • Economics and Econometrics

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