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Income, Health, and the Value of Preserving Options

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  • Rachel Kreier

    ()

  • Bhaswati Sengupta

    ()

Abstract

We model family choice among health plans taking account of family, insurer and health care provider (e.g., doctor) characteristics not addressed by earlier models. We use an additively separable utility function permitting an intuitive treatment of how families trade health against consumption, and how income and health risk influence that trade-off. Health care provider quality affects expected health outcomes and the family’s choice set includes health maintenance organization and preferred provider organization (PPO) plans. We model how families value the PPO’s option to use out-of-network providers taking into account uncertainty about future diagnoses and incomplete information about provider quality. The model’s predictions are consistent with enrollment patterns in the National Health Interview Survey. The approach has implications for cost control and income-related disparities in quality of care. Copyright International Atlantic Economic Society 2015

Suggested Citation

  • Rachel Kreier & Bhaswati Sengupta, 2015. "Income, Health, and the Value of Preserving Options," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 43(4), pages 431-448, December.
  • Handle: RePEc:kap:atlecj:v:43:y:2015:i:4:p:431-448
    DOI: 10.1007/s11293-015-9479-x
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    References listed on IDEAS

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    More about this item

    Keywords

    Real options; Health plan choice; Preferred provider organization; Quality of care; Health disparities; D00; D80; I00;

    JEL classification:

    • D00 - Microeconomics - - General - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • I00 - Health, Education, and Welfare - - General - - - General

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