Integrated Insurance Design in the Presence of Multiple Medical Technologies

Dana Goldman and Tomas Philipson

No 12870, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The classic theory of moral hazard concerns the insurance of a single good and predicts that co-insurance is larger when the elasticity of demand is higher and when small risks are insured. We extend this analysis to the insurance of multiple goods; for example, the simultaneous insurance of medical services and prescription drugs. We show that when multiple goods are either complements or substitutes--so that a change in co-insurance for one service affects the demand of others--the classic moral hazard results do not hold. For example, the single good model would predict high co-payments for prescription drugs since drug demand is elastic and of modest financial risk. However, a model of multi-good insurance suggests such drug coverage may optimally involve zero or even negative co-insurance when it is a substitute to other services insured such as hospital care or physician services. We summarize some of the empirical evidence in support of markets adopting optimal integrated pricing structures rather than individually optimal pricing structures.

JEL-codes: I1 I10 (search for similar items in EconPapers)
Date: 2007-01
New Economics Papers: this item is included in nep-ias
Note: EH
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Citations: View citations in EconPapers (60)

Published as Dana Goldman & Tomas J. Philipson, 2007. "Integrated Insurance Design in the Presence of Multiple Medical Technologies," American Economic Review, American Economic Association, vol. 97(2), pages 427-432, May.

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