Arrow’s theorem of the deductible: Moral hazard and stop-loss in health insurance

Jacques Dreze and Erik Schokkaert

Journal of Risk and Uncertainty, 2013, vol. 47, issue 2, 147-163

Abstract: The logic of Arrow’s theorem of the deductible, i.e. that it is optimal to focus insurance coverage on the states with largest expenditures, remains at work in a model with ex post moral hazard. The optimal insurance contract takes the form of a system of “implicit deductibles”, resulting in the same indemnities as a contract with full insurance above a variable deductible positively related to the elasticity of medical expenditures with respect to the insurance rate. In a model with a predefined ceiling on expenses, there is no reimbursement for expenses below the stop-loss amount. One motivation to have some insurance below the deductible arises if regular health care expenditures in a situation of standard health have a negative effect on the probability of getting into a state with large medical expenses. Copyright Springer Science+Business Media New York 2013

Keywords: Optimal health insurance; Deductible; Stop-loss; Moral hazard; I13 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (18)

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Working Paper: Arrow's theorem of the deductible: moral hazard and stop-loss in health insurance (2013)
Working Paper: Arrow’s theorem of the deductible: moral hazard and stop-loss in health insurance (2012)
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DOI: 10.1007/s11166-013-9177-5

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