An efficient employer strategy for dealing with adverse selection in multiple-plan offerings: an MSA example

This paper outlines a feasible employee premium contribution policy, which would reduce the inefficiency associated with adverse selection when a limi ted coverage insurance policy is offered alongside a more generous policy. The "efficient premium contribution" is defined and is shown to lead to an efficient allocation across plans of persons who differ by risk, but it may also redistribute against higher risks. A simulation of the additional opt ion of a catastrophic health plan (CHP) accompanied by a medical savings ac count (MSA) is presented. The efficiency gains from adding the MSA/catastro phic health insurance plan (CHP) option are positive but small, and the adv erse consequences for high risks under an efficient employee premium are al so small. (C) 2000 Elsevier Science B.V. All rights reserved.