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The Effects of Capping Co-Insurance Payments

Author

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  • Westerhout, Ed

    (Tilburg University, Center For Economic Research)

  • Folmer, Kees

Abstract

It is common to limit the cost sharing in health insurance schemes by a cap on co-insurance payments. This paper derives the economic and welfare effects of such a cap, adopting a model of which two features are crucial. First, health care demand is price-elastic. Second, demand is less elastic the worser the consumer’s health status. The paper derives that a cap induces optimizing health insurers to raise the co-insurance rate. This raises welfare in the aggregate, but part of the consumers do not share in this welfare gain. In particular, those with health spending close to the level at which co-insurance payments reach their maximum level suffer large welfare losses. We adopt a 3- state model to derive our results and a continuous-state model for a numerical illustration.

Suggested Citation

  • Westerhout, Ed & Folmer, Kees, 2018. "The Effects of Capping Co-Insurance Payments," Discussion Paper 2018-050, Tilburg University, Center for Economic Research.
  • Handle: RePEc:tiu:tiucen:828746fb-4fb0-465b-bdff-3d1938cef67e
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    References listed on IDEAS

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    More about this item

    Keywords

    coinsurance; health insurance; cap on coinsurance payments; moral hazard;

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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