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On the design of optimal health insurance contracts under ex post moral hazard

Pierre Martinon (), Pierre Picard and Anasuya Raj
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Pierre Martinon: Ecole Polytechnique, Department of Applied Mathematics and INRIA

The Geneva Papers on Risk and Insurance Theory, 2018, vol. 43, issue 2, 137-185

Abstract: Abstract We analyze the design of optimal medical insurance under ex post moral hazard, i.e., when illness severity cannot be observed by insurers and policyholders decide for themselves on their health expenditures. The trade-off between ex ante risk sharing and ex post incentive compatibility is analyzed in an optimal revelation mechanism under hidden information and risk aversion. The optimal contract provides partial insurance at the margin, with a deductible when insurers’ rates are affected by a positive loading, and it may also include an upper limit on coverage. The potential to audit the health state leads to an upper limit on out-of-pocket expenses.

Keywords: Health insurance; Contract; Ex post moral hazard; Optimal control (search for similar items in EconPapers)
JEL-codes: D82 D86 G22 I13 (search for similar items in EconPapers)
Date: 2018
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Working Paper: On the Design of Optimal Health Insurance Contracts under Ex Post Moral Hazard (2018) Downloads
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