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Researcher wins top award for work on health insurance

July 30, 2009

Health insurance is now a major topic of discussion for both lawmakers and average Americans just trying to figure out what their future coverage will look like. A top researcher at Arizona State University recently received a major international award for his work on how insurance markets really work and whether existing insurance "risk pools" even make sense.

Michael Keane, distinguished research professor of economics at the W. P. Carey School of Business at ASU, accepted the Ken Arrow Award, named for a Nobel Laureate, with two colleagues in Beijing this month. They were honored by the International Health Economics Association for writing the best health economics paper of 2008. Previous winners of this extremely prestigious award have also been recognized with the Nobel Prize, the John Bates Clark Medal and the MacArthur Fellowship, nicknamed "The Genius Award."

"I'm truly honored to be included in the company of such impressive past winners," says Keane. "I hope our work is recognized as having a real impact on society, especially in this climate where health care reform is being discussed."

Keane's research looks at the longstanding "adverse selection" theory in economics. As applied to health insurance, it predicts that people with worse health risks will buy the best health insurance, thus raising the overall risk (and cost) of insuring health on an individual basis. Belief in the theory is the reason "risk pools" exist whereby individuals of varying health risk are grouped together through an employer or even a country like England. All are required to participate in one negotiated contract to "average-out" adverse selection. This has the benefit of lowering the average price of insurance.

Recently, this long-held theory has been challenged when tested with data. Instead, recent research seemed to indicate that healthier people tend to buy more insurance, a direct challenge to the adverse selection principle. The new research from Keane and his colleagues found the common thread that smarter people tend to demand more insurance, and smarter people are also usually healthier. Utilizing this tendency, they then provided strong support for the adverse selection theory, finding that, among people of comparable intelligence levels, those who are less healthy do indeed buy more insurance.