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Incentivizing efficient utilization without reducing access: The case against cost-sharing in insurance

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  • Fels, Markus Peter

Abstract

Cost-sharing is regarded as an important tool to reduce moral hazard in health insurance. Contrary to standard prediction, however, such requirements are found to decrease utilization both of efficient and of inefficient care. I employ a simple model that incorporates two possible explanations - consumer mistakes and limited access - to assess the welfare implications of different insurance designs. I find cost-sharing never to be an optimal solution as it produces two novel inefficiencies by limiting access. An alternative design, relying on bonuses, has no such side effects and achieves the same incentivization.

Suggested Citation

  • Fels, Markus Peter, 2017. "Incentivizing efficient utilization without reducing access: The case against cost-sharing in insurance," Working Paper Series in Economics 105, Karlsruhe Institute of Technology (KIT), Department of Economics and Management.
  • Handle: RePEc:zbw:kitwps:105
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Chris Sampson’s journal round-up for 15th June 2020
      by Chris Sampson in The Academic Health Economists' Blog on 2020-06-15 11:00:19

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    Cited by:

    1. Hayen, Arthur & Klein, Tobias & Salm, Martin, 2018. "Does the framing of patient cost-sharing incentives matter? The effects of deductibles vs. no-claim refunds," CEPR Discussion Papers 12908, C.E.P.R. Discussion Papers.
    2. Markus Fels, 2020. "Mental Accounting, Access Motives, and Overinsurance," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(2), pages 675-701, April.
    3. Fels, Markus, 2019. "Risk attitudes with state-dependent indivisibilities in consumption," Ruhr Economic Papers 805, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.

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    More about this item

    Keywords

    Moral Hazard; Limited Access; Cost-Sharing; Insurance Rebates;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I14 - Health, Education, and Welfare - - Health - - - Health and Inequality

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