Compassion and cost: The dual role of reference pricing
AbstractProviding health insurance involves a trade-off between the benefits from risk spreading and the costs due to moral hazard. Focusing on pharmaceuticals consumption, this paper examines theoretically whether reference pricing, requiring individuals to pay the price difference if, in this case, they don’t buy the cheaper parallel imported drug, can ease this trade-off – an issue which has not previously been pointed out in the debate on health insurance. The results indicate that, if individuals are extremely risk-averse, a policy shift from coinsurance to reference pricing would do this by providing more insurance while decreasing moral hazard.
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Bibliographic InfoPaper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 498.
Length: 36 pages
Date of creation: 18 May 2011
Date of revision:
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Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
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More information through EDIRC
reference pricing; moral hazard; pharmaceuticals; parallel imports;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- I10 - Health, Education, and Welfare - - Health - - - General
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
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