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A Median Voter Model of Health Insurance with Ex Post Moral Hazard

  • Jacob, Johanna

    (Department of Economics)

  • Lundin, Douglas

    (Stockholm School of Economics)

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    One of the main features of health insurance is moral hazard, as defined by Pauly (1968); people face incentives for excess utilization of medical care since they do not pay the full marginal cost for provision. To mitigate the moral hazard problem, a coinsurance can be included in the insurance contract. We analyze under what conditions there is a conflict between individuals on what coinsurance rate should be set with public health insurance, and we establish conditions for a median-voter equilibrium. Then we allow the public insurance to be supplemented with private insurance, and we establish conditions under which public provision will lead to larger aggregate spending than private provision does.

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    Paper provided by Uppsala University, Department of Economics in its series Working Paper Series with number 2001:7.

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    Length: 34 pages
    Date of creation: 15 Feb 2001
    Date of revision:
    Handle: RePEc:hhs:uunewp:2001_007
    Contact details of provider: Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
    Phone: + 46 18 471 25 00
    Fax: + 46 18 471 14 78
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    1. Gans, Joshua S. & Smart, Michael, 1996. "Majority voting with single-crossing preferences," Journal of Public Economics, Elsevier, vol. 59(2), pages 219-237, February.
    2. Breyer, Friedrich, 1995. "The Political Economy of Rationing in Social Health Insurance," Journal of Population Economics, Springer, vol. 8(2), pages 137-48, May.
    3. Breyer, Friedrich & Haufler, Andreas, 2000. "Health Care Reform: Separating Insurance from Income Redistribution," Munich Reprints in Economics 20114, University of Munich, Department of Economics.
    4. 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.
    5. Usher, Dan, 1977. "The welfare economics of the socialization of commodities," Journal of Public Economics, Elsevier, vol. 8(2), pages 151-168, October.
    6. Epple, Dennis & Romano, Richard E, 1996. "Public Provision of Private Goods," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 57-84, February.
    7. Miguel Gouveia, 1997. "Majority rule and the public provision of a private good," Public Choice, Springer, vol. 93(3), pages 221-244, December.
    8. Getzen, Thomas E., 2000. "Health care is an individual necessity and a national luxury: applying multilevel decision models to the analysis of health care expenditures," Journal of Health Economics, Elsevier, vol. 19(2), pages 259-270, March.
    9. Wilson, L. S. & Katz, Michael L., 1983. "The socialization of commodities," Journal of Public Economics, Elsevier, vol. 20(3), pages 347-356, April.
    10. James P. Smith, 1999. "Healthy Bodies and Thick Wallets: The Dual Relation between Health and Economic Status," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 145-166, Spring.
    11. Tim Besley & John Hall & Ian Preston, 1996. "The demand for private health insurance: do waiting lists matter?," IFS Working Papers W96/07, Institute for Fiscal Studies.
    12. 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.
    13. Boadway, R. & Marchand, M., 1990. "The use of public expenditures for distributive purposes," CORE Discussion Papers 1990066, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    14. Blomquist, Suren & Christiansen, Vidar, 1995. " Public Provision of Private Goods as a Redistributive Device in an Optimum Income Tax Model," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 547-67, December.
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