Adverse Selection, Moral Hazard and the Demand for Medigap Insurance

Michael Keane and Olena Stavrunova

The size of adverse selection and moral hazard effects in health insurance markets has important policy implications. For example, if adverse selection effects are small while moral hazard effects are large, conventional remedies for inefficiencies created by adverse selection (e.g., mandatory insurance enrolment) may lead to substantial increases in health care spending.