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Why it may hurt to be insured: the effects of capping coinsurance payments

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  • Ed Westerhout

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  • Kees Folmer

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    Abstract

    Most health insurance schemes use some sort of cost sharing to curb the moral hazard that is inherent to insurance. It is common to limit this cost sharing, by applying a deductible or a stop loss, for example. This can be motivated from an insurance perspective: without a cap, coinsurance payments might be unacceptably high for people with high medical costs. This paper shows that introducing a cap on coinsurance payments may actually hurt people with high medical costs. This is not due to moral hazard that comes along with the extra insurance. Instead, it is because the introduction of a cap makes health spending below the cap more price elastic, thereby inducing the health insurer to raise the coinsurance rate. Keywords: Moral Hazard, Deductibles, Co-Payment Schemes in Health Care, Idiosyncratic Health Shocks

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    Bibliographic Info

    Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Discussion Paper with number 239.

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    Date of creation: Mar 2013
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    Handle: RePEc:cpb:discus:239

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