This paper studies how important reclassification risks in the health insurance market are for the welfare of consumers. Reclassification risks arise because health conditions of individuals evolve over time. Any change in health status will lead to a change in the price of health insurance when...

Two key components of the upcoming health reform are a reorganization of the individual health insurance market and an increase in income redistribution in the economy. Which component contributes more to the welfare outcome of the reform? We address this question by constructing a general...