Does the market choose optimal health insurance coverage?
AbstractConsumers, when buying health insurance, do not know the exact value of each treatment that they buy coverage for. This leads them to overvalue some treatments and undervalue others. We show that the insurance market cannot correct these mistakes. This causes research labs to overinvest in treatments that hardly add value compared to current best practice. The government can stimulate R&D in breakthrough treatments by excluding treatments with low value added from health insurance coverage. If the country is rich enough such a government intervention in a private health insurance market raises welfare.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9420.
Date of creation: Apr 2013
Date of revision:
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Other versions of this item:
- Boone, J., 2013. "Does the Market Choose Optimal Health Insurance Coverage," Discussion Paper 2013-008, Tilburg University, Tilburg Law and Economic Center.
- D4 - Microeconomics - - Market Structure and Pricing
- I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
- I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-04-13 (All new papers)
- NEP-COM-2013-04-13 (Industrial Competition)
- NEP-HEA-2013-04-13 (Health Economics)
- NEP-IAS-2013-04-13 (Insurance Economics)
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