Co-payment systems in health care; between moral hazard and risk reduction
It is well-known that co-payments in health insurance may increase social welfare by reducing moral hazard. Considerably less is known about the form co-payment schemes should ideally take. This paper investigates what co-payment rate and co-payment maximum characterize the optimal scheme, i.e. the scheme that achieves the highest level of social welfare, within the class of two-part co-payment schemes of which the second part features a zero rate. It also quantifies the welfare losses that correspond with sub-optimal co-payment schemes. The paper uses a model with optimizing households that are risk-averse, exercise price-elastic demand and are aware of the kinks in their budget constraints. Numerical simulations with this model indicate that the optimal scheme combines a 80% rate with a maximum of about 600 euro. Sensitivity analysis shows that the maximum varies a lot with changes in basic parameters; the 80% value for the optimal co-payment rate is quite robust, though. The welfare losses that correspond to alternative co-payment schemes are generally quite small.
|Date of creation:||Feb 2007|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (070) 338 33 80
Fax: (070) 338 33 50
Web page: http://www.cpb.nl/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
- Zweifel, Peter & Manning, Willard G., 2000. "Moral hazard and consumer incentives in health care," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 8, pages 409-459 Elsevier.
- Sandmo, Agnar, 1987. "A Reinterpretation of Elasticity Formulae in Optimum Tax Theory," Economica, London School of Economics and Political Science, vol. 54(213), pages 89-96, February.
- Rosett, Richard N & Huang, Lien-fu, 1973. "The Effect of Health Insurance on the Demand for Medical Care," Journal of Political Economy, University of Chicago Press, vol. 81(2), pages 281-305, Part I, M.
- Feenberg, Daniel & Skinner, Jonathan, 1994.
"The Risk and Duration of Catastrophic Health Care Expenditures,"
The Review of Economics and Statistics,
MIT Press, vol. 76(4), pages 633-47, November.
- Daniel Feenberg & Jonathan Skinner, 1992. "The Risk and Duration of Catastrophic Health Care Expenditures," NBER Working Papers 4147, National Bureau of Economic Research, Inc.
- Wedig, Gerard J., 1988. "Health status and the demand for health : Results on price elasticities," Journal of Health Economics, Elsevier, vol. 7(2), pages 151-163, June.
- Blomqvist, Ake, 1997. "Optimal non-linear health insurance," Journal of Health Economics, Elsevier, vol. 16(3), pages 303-321, June.
- Feldman, Roger & Dowd, Bryan, 1991. "A New Estimate of the Welfare Loss of Excess Health Insurance," American Economic Review, American Economic Association, vol. 81(1), pages 297-301, March.
- Feldstein, Martin S, 1973. "The Welfare Loss of Excess Health Insurance," Journal of Political Economy, University of Chicago Press, vol. 81(2), pages 251-80, Part I, M.
- Raviv, Artur, 1979. "The Design of an Optimal Insurance Policy," American Economic Review, American Economic Association, vol. 69(1), pages 84-96, March.
- Manning, Willard G. & Marquis, M. Susan, 1996. "Health insurance: The tradeoff between risk pooling and moral hazard," Journal of Health Economics, Elsevier, vol. 15(5), pages 609-639, October.
When requesting a correction, please mention this item's handle: RePEc:cpb:discus:78. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.