Working Paper: CEPR ID: DP16238
Authors: Helmuth Cremer; Jean-Marie Lozachmeur
Abstract: This paper studies a market for a medical product in which there is perfect competition among health insurers, while the good is sold by a monopolist. Individuals differ in their severity of illness and there is ex post moral hazard. We consider two regimes: one in which insurers use coinsurance rates (ad valorem reimbursements) and one in which insurers use copayments (specific reimbursements). We show that the induced equilibrium with copayments involves a lower producer price and a higher level of welfare for consumers. This results provides strong support for a reference price based reimbursement policy.
Keywords: ex post moral hazard; health insurance; competition; copayments; imperfect competition
JEL Codes: I11; I13; I18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| type of reimbursement (coinsurance vs. copayment) (G52) | producer price (P) (P42) |
| producer price (P) (P42) | consumer welfare (W) (D69) |
| type of reimbursement (coinsurance vs. copayment) (G52) | consumer welfare (W) (D69) |
| equilibrium price under copayments (P_s) < equilibrium price under coinsurance (P_a) (P22) | higher expected utility for consumers (D11) |