One of the main features of health insurance is moral hazard, as defined by Pauly (1968); people face incentives for excess utilization of medical care since they do not pay the full marginal cost for provision. To mitigate the moral hazard problem, a coinsurance can be included in the insurance contract. We analyze under what conditions there is a conflict between individuals on what coinsurance rate should be set with public health insurance, and we establish conditions for a median-voter equilibrium. Then we allow the public insurance to be supplemented with private insurance, and we establish conditions under which public provision will lead to larger aggregate spending than private provision does.
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Paper provided by Uppsala - Working Paper Series in its series Papers with number
2001:07.
Length: 34 pages Date of creation: 2001 Date of revision: Handle: RePEc:fth:uppaal:2001:07
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Find related papers by JEL classification: H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods H40 - Public Economics - - Publicly Provided Goods - - - General I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
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