IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_9160.html
   My bibliography  Save this paper

Coinsurance vs. Copayments: Reimbursement Rules for a Monopolistic Medical Product with Competitive Health Insurers

Author

Listed:
  • Helmuth Cremer
  • Jean-Marie Lozachmeur

Abstract

This paper studies a market for a medical product in which there is perfect competition among health insurers, while the good is sold by a monopolist. Individuals differ in their severity of illness and there is ex post moral hazard. We consider two regimes: one in which insurers use coinsurance rates (ad valorem reimbursements) and one in which insurers use copayments (specific reimbursements). We show that the induced equilibrium with copayments involves a lower producer price and a higher level of welfare for consumers. This results provides strong support for a reference price based reimbursement policy.

Suggested Citation

  • Helmuth Cremer & Jean-Marie Lozachmeur, 2021. "Coinsurance vs. Copayments: Reimbursement Rules for a Monopolistic Medical Product with Competitive Health Insurers," CESifo Working Paper Series 9160, CESifo.
    • Handle: RePEc:ces:ceswps:_9160
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp9160.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Bardey, David & Cremer, Helmuth & Lozachmeur, Jean-Marie, 2016. "The design of insurance coverage for medical products under imperfect competition," Journal of Public Economics, Elsevier, vol. 137(C), pages 28-37.
    2. Brekke, Kurt R. & Konigbauer, Ingrid & Straume, Odd Rune, 2007. "Reference pricing of pharmaceuticals," Journal of Health Economics, Elsevier, vol. 26(3), pages 613-642, May.
    3. Bardey, David & Jullien, Bruno & Lozachmeur, Jean-Marie, 2016. "Health insurance and diversity of treatment," Journal of Health Economics, Elsevier, vol. 47(C), pages 50-63.
    4. Berndt Ernst R. & McGuire Thomas & Newhouse Joseph P., 2011. "A Primer on the Economics of Prescription Pharmaceutical Pricing in Health Insurance Markets," Forum for Health Economics & Policy, De Gruyter, vol. 14(2), pages 1-30, November.
    5. Martin Gaynor & Deborah Haas-Wilson & William B. Vogt, 2000. "Are Invisible Hands Good Hands? Moral Hazard, Competition, and the Second-Best in Health Care Markets," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 992-1005, October.
    6. Whaley, Christopher M. & Brown, Timothy T., 2018. "Firm responses to targeted consumer incentives: Evidence from reference pricing for surgical services," Journal of Health Economics, Elsevier, vol. 61(C), pages 111-133.
    7. Feldstein, Martin S, 1973. "The Welfare Loss of Excess Health Insurance," Journal of Political Economy, University of Chicago Press, vol. 81(2), pages 251-280, Part I, M.
    8. Lakdawalla, Darius & Sood, Neeraj, 2013. "Health insurance as a two-part pricing contract," Journal of Public Economics, Elsevier, vol. 102(C), pages 1-12.
    9. Brekke, Kurt R. & Holmas, Tor Helge & Straume, Odd Rune, 2011. "Reference pricing, competition, and pharmaceutical expenditures: Theory and evidence from a natural experiment," Journal of Public Economics, Elsevier, vol. 95(7), pages 624-638.
    10. Vaithianathan, Rhema, 2006. "Health insurance and imperfect competition in the health care market," Journal of Health Economics, Elsevier, vol. 25(6), pages 1193-1202, November.
    11. Friend, Irwin & Blume, Marshall E, 1975. "The Demand for Risky Assets," American Economic Review, American Economic Association, vol. 65(5), pages 900-922, December.
    12. Panos Kanavos & Anna-Maria Fontrier & Jennifer Gill & Olina Efthymiadou, 2020. "Does external reference pricing deliver what it promises? Evidence on its impact at national level," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 21(1), pages 129-151, February.
    13. Feldman, Roger & Dowd, Bryan, 1991. "A New Estimate of the Welfare Loss of Excess Health Insurance," American Economic Review, American Economic Association, vol. 81(1), pages 297-301, March.
    14. Chiu, W. Henry, 1997. "Health insurance and the welfare of health care consumers," Journal of Public Economics, Elsevier, vol. 64(1), pages 125-133, April.
    15. Feldstein, Martin S, 1970. "The Rising Price of Physicians' Services," The Review of Economics and Statistics, MIT Press, vol. 52(2), pages 121-133, May.
    16. Aouad, Marion & Brown, Timothy T. & Whaley, Christopher M., 2019. "Reference pricing: The case of screening colonoscopies," Journal of Health Economics, Elsevier, vol. 65(C), pages 246-259.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bardey, David & Cremer, Helmuth & Lozachmeur, Jean-Marie, 2016. "The design of insurance coverage for medical products under imperfect competition," Journal of Public Economics, Elsevier, vol. 137(C), pages 28-37.
    2. Nell, Martin & Richter, Andreas & Schiller, Jörg, 2009. "When prices hardly matter: Incomplete insurance contracts and markets for repair goods," European Economic Review, Elsevier, vol. 53(3), pages 343-354, April.
    3. repec:dau:papers:123456789/15235 is not listed on IDEAS
    4. Brigitte Dormont & Mathilde Péron, 2016. "Does Health Insurance Encourage the Rise in Medical Prices? A Test on Balance Billing in France," Health Economics, John Wiley & Sons, Ltd., vol. 25(9), pages 1073-1089, September.
    5. Dormont, B. & Péron, M., 2015. "Does health insurance encourage the rise in medical prices?," Health, Econometrics and Data Group (HEDG) Working Papers 15/16, HEDG, c/o Department of Economics, University of York.
    6. Run Liang & Hao Wang, 2017. "Health insurance, market power, and social welfare," International Journal of Economic Theory, The International Society for Economic Theory, vol. 13(4), pages 427-442, December.
    7. Wigger, Berthold U. & Anlauf, Markus, 2002. "Moral Hazard, Market Power, and Second Best Health Insurance," CSLE Discussion Paper Series 2002-06, Saarland University, CSLE - Center for the Study of Law and Economics.
    8. Anlauf, Markus & Wigger, Berthold U., 1999. "Health insurance and consumer welfare : The case of monopolistic drug markets," Discussion Papers 565, Institut fuer Volkswirtschaftslehre und Statistik, Abteilung fuer Volkswirtschaftslehre.
    9. Baker, Laurence C. & Bundorf, M. Kate & Kessler, Daniel P., 2015. "Does health plan generosity enhance hospital market power?," Journal of Health Economics, Elsevier, vol. 44(C), pages 54-62.
    10. Herr, A. & Suppliet, M., 2011. "Co-Payment Exemptions and Reference Prices: an Empirical Study of Pharmaceutical Prices in Germany," Health, Econometrics and Data Group (HEDG) Working Papers 11/18, HEDG, c/o Department of Economics, University of York.
    11. Brekke, Kurt R. & Dalen, Dag Morten & Straume, Odd Rune, 2022. "Paying for pharmaceuticals: uniform pricing versus two-part tariffs," Journal of Health Economics, Elsevier, vol. 83(C).
    12. Unsorg Maximiliane, 2022. "Reference pricing systems on the pharmaceutical market," German Economic Review, De Gruyter, vol. 23(3), pages 403-421, August.
    13. Brekke, Kurt R. & Canta, Chiara & Straume, Odd Rune, 2016. "Reference pricing with endogenous generic entry," Journal of Health Economics, Elsevier, vol. 50(C), pages 312-329.
    14. Chiu, W. Henry, 1997. "Health insurance and the welfare of health care consumers," Journal of Public Economics, Elsevier, vol. 64(1), pages 125-133, April.
    15. Mark Agee & Zane Gates, 2013. "Lessons from Game Theory about Healthcare System Price Inflation," Applied Health Economics and Health Policy, Springer, vol. 11(1), pages 45-51, February.
    16. Gilad Sorek & Randolph T. Beard, 2016. "Regulating from the Demand Side: Public Health Insurance with Monopolistically Competitive Providers and Optional Spot Sales," Auburn Economics Working Paper Series auwp2016-06, Department of Economics, Auburn University.
    17. Vaithianathan, Rhema, 2006. "Health insurance and imperfect competition in the health care market," Journal of Health Economics, Elsevier, vol. 25(6), pages 1193-1202, November.
    18. Richard Dusansky & Çağatay Koç, 2016. "Individual Welfare When Consumers Can Shop For Health Insurance," Economic Inquiry, Western Economic Association International, vol. 54(2), pages 1283-1290, April.
    19. Donald J. Wright, 2006. "Insurance and Monopoly Power in a Mixed Private/Public Hospital System," The Economic Record, The Economic Society of Australia, vol. 82(259), pages 460-468, December.
    20. Laurence C. Baker & M. Kate Bundorf & Daniel P. Kessler, 2015. "Does Health Plan Generosity Enhance Hospital Market Power?," NBER Working Papers 21513, National Bureau of Economic Research, Inc.
    21. Bardey, David & Harker, Arturo & Zuluaga, Daniela, 2021. "Price cap regulation in the Colombian pharmaceutical market: An impact evaluation," TSE Working Papers 21-1195, Toulouse School of Economics (TSE).

    More about this item

    Keywords

    ex post moral hazard; health insurance competition; copayments; imperfect competition;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_9160. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.