| Abstract: |
Reducing the impact of insurance market failures with regulations such as
community-rated premiums, standardized benefit packages and open enrolment,
yield limited impact because they create room for selection bias. The
Colombian social health insurance system started a market approach in 1993 on
the expectation to improve performance of preexisting monopolistic insurance
funds by exposing them to competition by new entrants. It is hypothesized that
market failures would lead to biased selection favoring new entrants. Two
household surveys are analyzed using Self-reported health status and the
presence of chronic conditions as indicators of prospective risk of enrolees.
Biased selection is found to take place, leading to adverse selection among
incumbents, and favorable selection among new entrants. This pattern is
observed in 1997 and worsens in 2003. Although the two incumbents analyzed are
public organizations, and their size dropped substantially between these two
years, fiscal implications in terms of government bailouts are analyzed. |