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A welfare measure of “offset effects” in health insurance

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  • Glazer, Jacob
  • McGuire, Thomas G.
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    Abstract

    Changing health insurance coverage for one service may affect use of other insured services. When improving coverage for one service reduces use of another, the savings are referred to as “offset effects.” For example, costs of better coverage for prescription drugs may be partly “offset” by reductions in hospital costs. Offset effects have welfare implications but it has not been clear how to value these impacts in design of health insurance. We show that plan-paid – rather than total – spending is the right welfare measure of the offset effect, and go on to develop a “sufficient statistic” for evaluating the welfare effects of change in coverage in the presence of multiple goods. We derive a simple rule for when a coverage improvement increases welfare due to offset effects.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Public Economics.

    Volume (Year): 96 (2012)
    Issue (Month): 5 ()
    Pages: 520-523

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    Handle: RePEc:eee:pubeco:v:96:y:2012:i:5:p:520-523

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    Web page: http://www.elsevier.com/locate/inca/505578

    Related research

    Keywords: Health insurance design; Offset effects;

    References

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    1. Chandra, Amitabh & Gruber, Jonathan & McKnight, Robin, 2009. "Patient Cost-Sharing and Hospitalization Offsets in the Elderly," Scholarly Articles 8058412, Harvard Kennedy School of Government.
    2. Ellis, Randall P. & Manning, Willard G., 2007. "Optimal health insurance for prevention and treatment," Journal of Health Economics, Elsevier, vol. 26(6), pages 1128-1150, December.
    3. Newhouse, Joseph P., 2006. "Reconsidering the moral hazard-risk avoidance tradeoff," Journal of Health Economics, Elsevier, vol. 25(5), pages 1005-1014, September.
    4. Baoping Shang & Dana P. Goldman, 2007. "Prescription Drug Coverage and Elderly Medicare Spending," NBER Working Papers 13358, National Bureau of Economic Research, Inc.
    5. Raj Chetty, 2008. "Sufficient Statistics for Welfare Analysis: A Bridge Between Structural and Reduced-Form Methods," NBER Working Papers 14399, National Bureau of Economic Research, Inc.
    6. Lakdawalla, Darius & Sood, Neeraj, 2009. "Innovation and the welfare effects of public drug insurance," Journal of Public Economics, Elsevier, vol. 93(3-4), pages 541-548, April.
    7. Zeckhauser, Richard, 1970. "Medical insurance: A case study of the tradeoff between risk spreading and appropriate incentives," Journal of Economic Theory, Elsevier, vol. 2(1), pages 10-26, March.
    8. Gaynor Martin & Li Jian & Vogt William B, 2007. "Substitution, Spending Offsets, and Prescription Drug Benefit Design," Forum for Health Economics & Policy, De Gruyter, vol. 10(2), pages 1-33, July.
    9. Dana Goldman & Tomas Philipson, 2007. "Integrated Insurance Design in the Presence of Multiple Medical Technologies," NBER Working Papers 12870, National Bureau of Economic Research, Inc.
    10. Pauly, Mark V. & Blavin, Fredric E., 2008. "Moral hazard in insurance, value-based cost sharing, and the benefits of blissful ignorance," Journal of Health Economics, Elsevier, vol. 27(6), pages 1407-1417, December.
    11. Frank R. Lichtenberg, 2007. "The Impact of New Drugs on US Longevity and Medical Expenditure, 1990–2003: Evidence from Longitudinal, Disease-Level Data," American Economic Review, American Economic Association, vol. 97(2), pages 438-443, May.
    12. Duggan, Mark, 2005. "Do new prescription drugs pay for themselves?: The case of second-generation antipsychotics," Journal of Health Economics, Elsevier, vol. 24(1), pages 1-31, January.
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