Abstract

This paper analyzes the impact of flat premiums on equity and efficiency within a regulated market. We examine the consequences of shifting from a risk-adjusted premium model to a flat premium system, particularly focusing on how this shift affects different income groups and market efficiency. Using a combination of theoretical modeling and empirical analysis, we find that flat premiums may lead to increased cross-subsidization among participants, with notable effects on both equity and efficiency. Our results suggest that while flat premiums simplify the regulatory framework, they also introduce trade-offs that policymakers must carefully consider.