Health Insurance as a Two-Part Pricing Contract

Darius Lakdawalla and Neeraj Sood

No 12681, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Monopolies appear throughout health care markets, as a result of patents, limits to the extent of the market, or the presence of unique inputs and skills. In the health care industry, however, the deadweight costs of monopoly may be small or even absent. Health insurance, frequently implemented as an ex ante premium coupled with an ex post co-payment per unit consumed, effectively operates as a two-part pricing contract. This allows monopolists to extract consumer surplus without inefficiently constraining quantity. This view of health insurance contracts has several implications: (1) Low ex post copayments to insured consumers substantially reduce deadweight losses from medical care monopolies -- we calculate, for instance, that the presence of health insurance lowers monopoly loss in the US pharmaceutical market by 82 percent; (2) Price regulation or break-up of health care monopolies may be inferior to laissez-faire or simple redistribution of monopoly profits; and (3) Promoting efficiency in the health insurance market can reduce static losses in the goods market while improving the dynamic efficiency of innovation.

JEL-codes: D42 I11 (search for similar items in EconPapers)
Date: 2006-11
New Economics Papers: this item is included in nep-com, nep-hea, nep-ias and nep-mic
Note: EH IO
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

Published as Lakdawalla, Darius & Sood, Neeraj, 2013. "Health insurance as a two-part pricing contract," Journal of Public Economics, Elsevier, vol. 102(C), pages 1-12.

Downloads: (external link)
http://www.nber.org/papers/w12681.pdf (application/pdf)

Related works:
Journal Article: Health insurance as a two-part pricing contract (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:12681

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w12681

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().