Insurance Search and Switching Behavior

Jonneke Bolhaar
Maarten Lindeboom
Bas van der Klaauw

September 2009

This paper looks into the search behavior of consumers in the market for health insurance contracts. We consider the recent health insurance reform in The Netherlands, where a private-public mix of insurance provision was replaced by a system based on managed competition. Although all insurers offer the same basic package (determined by the government), there is substantial premium dispersion. We develop a consumer search model containing the main features of the Dutch health insurance system. This model provides us with a number of hypotheses, which we test using data from the Dutch Health Care Consumer Panel. We find that the simple consumer search model describes the choice for insurance coverage well, but fails in explaining individual search decisions. We argue that search costs are heterogeneous and related to knowledge about the system. In this case, group contracts offered by insurers, might cause third-degree price discrimination and reduce access to health care for some groups of individuals.

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Last updated: September 21, 2009.