Does the market choose optimal health insurance coverage?

Jan Boone

No 9420, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Consumers, when buying health insurance, do not know the exact value of each treatment that they buy coverage for. This leads them to overvalue some treatments and undervalue others. We show that the insurance market cannot correct these mistakes. This causes research labs to overinvest in treatments that hardly add value compared to current best practice. The government can stimulate R&D in breakthrough treatments by excluding treatments with low value added from health insurance coverage. If the country is rich enough such a government intervention in a private health insurance market raises welfare.

Keywords: Cost effectiveness analysis; Pharmaceutical research and development; Health insurance (search for similar items in EconPapers)
JEL-codes: D4 I13 I18 (search for similar items in EconPapers)
Date: 2013-04
New Economics Papers: this item is included in nep-com, nep-hea and nep-ias
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Working Paper: Does the Market Choose Optimal Health Insurance Coverage (2013)
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