Getting better, feeling worse : cure rates, health insurance, and welfare
We model a health insurance market where rising cure rates for a disease may paradoxically diminish welfare and even negate the desirability of health insurance altogether. In the model, rising cure rates can affect welfare in two ways: (1) directly, by improving some individuals' health, and (2) indirectly, by influencing the mode and parameters of the optimal insurance contract and, thus, ex post financial wealth distribution. (“Mode” refers to the qualitative specifications of the contract—presence or absence of indemnities and full, partial or zero coverage of treatments received. “Parameters” refers to the quantitative features of the contracts—level of nonzero indemnities, deductibles and premiums.) ; Graboyes (2000a) compares the relative efficiency of deductibles and indemnities in deterring low-benefit patients (those whom treatment is less likely to cure) from seeking expensive medical care. The current paper asks how optimal insurance and associated welfare change as curative technology improves. Deterring some but not all patients requires deductibles or indemnities because one’s H/L status is known to all, but not legally verifiable. ; We find that advances in curative power may reduce welfare and even eradicate health insurance. This is because at higher cure rates, higher indemnities and deductibles are needed to deter patients from seeking treatment. Given certain population parameters, higher cure rates can only reduce welfare. The findings raise some practical, empirical, and ethical questions; some of these issues are enumerated in the conclusion.
|Date of creation:||2000|
|Contact details of provider:|| Web page: http://www.richmondfed.org/|
More information through EDIRC
|Order Information:|| Web: http://www.richmondfed.org/publications/ Email: |
References listed on IDEAS
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.:
- James R. Baumgardner, 1991. "The Interaction between Forms of Insurance Contract and Types of Technical Change in Medical Care," RAND Journal of Economics, The RAND Corporation, vol. 22(1), pages 36-53, Spring.
- Akerlof, George A, 1983. "Loyalty Filters," American Economic Review, American Economic Association, vol. 73(1), pages 54-63, March.
- David M. Cutler, 1996. "Public Policy for Health Care," NBER Working Papers 5591, National Bureau of Economic Research, Inc.
- Gianfrancesco, Frank D., 1983. "A proposal for improving the efficiency of medical insurance," Journal of Health Economics, Elsevier, vol. 2(2), pages 175-184, August.
- Goddeeris, John H, 1984. "Medical Insurance, Technological Change, and Welfare," Economic Inquiry, Western Economic Association International, vol. 22(1), pages 56-67, January.
- Feldstein, Martin S, 1973. "The Welfare Loss of Excess Health Insurance," Journal of Political Economy, University of Chicago Press, vol. 81(2), pages 251-280, Part I, M.
- David M. Cutler & Louise Sheiner, 1998.
"Managed Care and the Growth of Medical Expenditures,"
NBER Chapters,in: Frontiers in Health Policy Research, Volume 1, pages 77-116
National Bureau of Economic Research, Inc.
- David M. Cutler & Louise Sheiner, 1997. "Managed Care and the Growth of Medical Expenditures," NBER Working Papers 6140, National Bureau of Economic Research, Inc.
- Randall P. Ellis & Thomas G. McGuire, 1993. "Supply-Side and Demand-Side Cost Sharing in Health Care," Journal of Economic Perspectives, American Economic Association, vol. 7(4), pages 135-151, Fall.
- George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:fip:fedrwp:00-05. 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: (Christian Pascasio)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.