Economic Welfare Effect of Providing Guaranteed Renewable Insurance in the Health Insurance Market of Iran

Reclassification risk is a downside for the insurance applicants in the face of a sharp increase in premiums due to the deterioration of individual health conditions. Guaranteed renewable (GR) health insurance directly protects the applicants against the mentioned risk. The reason for this support is the existence of a prepayment in the first insurance premium. Instead, the premiums in the next years are independent of the applicant’s future health. The current study aimed at evaluating the effect of providing this new insurance policy in the health insurance market of Iran on economic welfare of health insurance applicants. This evaluation was conducted in the form of two hypotheses, including "provision of GR insurance along with other insurance" and “the replacement of all insurance with GR insurance”. The economic welfare at micro-level is measured by changes in household consumption. In an econometric model, the policy effect was evaluated through propensity score matching. In general, the provision of GR insurance in the health insurance market of Iran increased the welfare of insurance applicants. However, the welfare benefits are greater in the second hypothesis. If the integration plan for insurance funds be implemented, GR insurance can be a good alternative to all insurance funds due to the elimination of reclassification risk and the increase of the welfare of health insurance applicants.