Insurance Search, Switching Behavior and the Role of Group Contracts

This paper considers consumer behavior in the Dutch market for health insurances, which is characterized by managed competition. We observe substantial price dispersion for the same basic insurance package. We describe the market by a simple consumer search model, which we empirically test using data from the Dutch Health Care Consumer Panel. We argue that insurers use group contracts to target discounts to better informed consumers, reducing their incentives to search. Since search is essential for competition, this increases premiums and premium dispersion.