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The distortionary effect of health insurance on health demand

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Author Info

  • Nathalie Fombaron

    (EconomiX - CNRS : UMR7166 - Université Paris X - Paris Ouest Nanterre La Défense)

  • Carine Milcent

    (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris)

Abstract

This paper presents a general framework for modeling the impact of insurance on healthcare demand extending some of the results of the two-risk model of Rothschild and Stiglitz (1976), but including the latter as a special case. Rothschild and Stiglitz's approach assumes equivalence between the price of treatment and the discomfort caused by the disease. Relaxing this assumption turns out to be key in understanding participation in the insurance and healthcare markets. The demands for insurance and healthcare are modeled simultaneously, under symmetric and asymmetric information. Four main results arise from the relaxation of this assumption. First, only the presence of an insurance market can produce healthcare consumption at higher prices than the discomfort. Second, adverse selection may lead healthcare to be sold at a price lower than that under perfect information. Third, the potential non-participation of one type risk arises despite competition, depending on the degree of information. Last, in a public voluntary regime, one type risk may prefer to be uninsured and still consume healthcare.

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Bibliographic Info

Paper provided by HAL in its series PSE Working Papers with number halshs-00587713.

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Date of creation: Feb 2007
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Handle: RePEc:hal:psewpa:halshs-00587713

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Related research

Keywords: health insurance ; adverse selection ; health care; public/private ; compulsory/voluntary insurance;

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Cited by:
  1. Michiel Bijlsma & Jan Boone & Gijsbert Zwart, 2010. "Selective contracting and foreclosure in health care markets," CPB Discussion Paper, CPB Netherlands Bureau for Economic Policy Analysis 140, CPB Netherlands Bureau for Economic Policy Analysis.
  2. Georges Dionne & Nathalie Fombaron & Neil Doherty, 2012. "Adverse Selection in Insurance Contracting," Cahiers de recherche, CIRPEE 1231, CIRPEE.

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