This paper analyses the consequences of allowing a choice between traditional insurance and managed care under community rating. A model of a competitive health insurance market is developed; with the risk equalization scheme being imperfect. There are two types of individuals who are...

In the absence of a perfect risk adjustment scheme, reimbursing health insurers' costs can reduce risk selection in community-rated health insurance markets. In this paper, we develop a model in which insurers determine the cost efficiency of health care and have incentives for risk selection....