Asymmetric information and the demand for Medigap insurance.

The Medigap insurance market has been characterized as having considerable cross-policy variation in contract design and relatively high premiums vis-a-vis average risk exposure. One explanation for these characteristics is that adverse selection exists in the Medigap market. The purpose of this study is to investigate adverse selection effects among those purchasing Medigap insurance. Findings are consistent with the presence of adverse selection in the Medigap market and premium cross-subsidization from low- to high-risk insured individuals.