The impact of managed care on the existence of equilibrium in health insurance markets

This study examines the existence of equilibrium in insurance markets when the number of insurance policy attributes is increased (i.e., managed care is introduced). Individuals choose an insurance contract from an endogenous choice set. The introduction of managed care improves the ability of low risks to distinguish themselves from high risks. This may yield equilibrium in cases when it would not exist in an FFS-only environment. However, managed care expands the product space in which a pooling policy could break a separating equilibrium. Thus, existence of equilibrium in an FFS-only environment does not imply existence with managed care. (October 1999)