Why it may hurt to be insured: the effects of capping coinsurance payments

Ed Westerhout () and Kees Folmer
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Ed Westerhout: CPB Netherlands Bureau for Economic Policy Analysis

No 239, CPB Discussion Paper from CPB Netherlands Bureau for Economic Policy Analysis

Abstract: Most health insurance schemes use some sort of cost sharing to curb the moral hazard that is inherent to insurance. It is common to limit this cost sharing, by applying a deductible or a stop loss, for example. This can be motivated from an insurance perspective: without a cap, coinsurance payments might be unacceptably high for people with high medical costs. This paper shows that introducing a cap on coinsurance payments may actually hurt people with high medical costs. This is not due to moral hazard that comes along with the extra insurance. Instead, it is because the introduction of a cap makes health spending below the cap more price elastic, thereby inducing the health insurer to raise the coinsurance rate.

Keywords: Moral Hazard; Deductibles; Co-Payment Schemes in Health Care; Idiosyncratic Health Shocks (search for similar items in EconPapers)
JEL-codes: D60 H21 I18 (search for similar items in EconPapers)
Date: 2013-03
New Economics Papers: this item is included in nep-hea and nep-ias
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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