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Does the market choose optimal health insurance coverage?

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  • Boone, Jan

Abstract

Consumers, when buying health insurance, do not know the exact value of each treatment that they buy coverage for. This leads them to overvalue some treatments and undervalue others. We show that the insurance market cannot correct these mistakes. This causes research labs to overinvest in treatments that hardly add value compared to current best practice. The government can stimulate R&D in breakthrough treatments by excluding treatments with low value added from health insurance coverage. If the country is rich enough such a government intervention in a private health insurance market raises welfare.

Suggested Citation

  • Boone, Jan, 2013. "Does the market choose optimal health insurance coverage?," CEPR Discussion Papers 9420, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:9420
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    References listed on IDEAS

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    More about this item

    Keywords

    cost effectiveness analysis; health insurance; pharmaceutical research and development;

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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