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A welfare measure of “offset effects” in health insurance

  • Glazer, Jacob
  • McGuire, Thomas G.
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    Changing health insurance coverage for one service may affect use of other insured services. When improving coverage for one service reduces use of another, the savings are referred to as “offset effects.” For example, costs of better coverage for prescription drugs may be partly “offset” by reductions in hospital costs. Offset effects have welfare implications but it has not been clear how to value these impacts in design of health insurance. We show that plan-paid – rather than total – spending is the right welfare measure of the offset effect, and go on to develop a “sufficient statistic” for evaluating the welfare effects of change in coverage in the presence of multiple goods. We derive a simple rule for when a coverage improvement increases welfare due to offset effects.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0047272712000205
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    Article provided by Elsevier in its journal Journal of Public Economics.

    Volume (Year): 96 (2012)
    Issue (Month): 5 ()
    Pages: 520-523

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    Handle: RePEc:eee:pubeco:v:96:y:2012:i:5:p:520-523
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

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    7. Pauly, Mark V. & Blavin, Fredric E., 2008. "Moral hazard in insurance, value-based cost sharing, and the benefits of blissful ignorance," Journal of Health Economics, Elsevier, vol. 27(6), pages 1407-1417, December.
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    9. Chandra, Amitabh & Gruber, Jonathan & McKnight, Robin, 2009. "Patient Cost-Sharing and Hospitalization Offsets in the Elderly," Scholarly Articles 8058412, Harvard Kennedy School of Government.
    10. Raj Chetty, 2009. "Sufficient Statistics for Welfare Analysis: A Bridge Between Structural and Reduced-Form Methods," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 451-488, 05.
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