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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: Commands - Control, Optimization, Models, Methods and Applications for Nonlinear Dynamical Systems - CMAP - Centre de Mathématiques Appliquées - Ecole Polytechnique - X - École polytechnique - CNRS - Centre National de la Recherche Scientifique - Inria Saclay - Ile de France - Inria - Institut National de Recherche en Informatique et en Automatique

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Abstract: We analyze the design of optimal medical insurance under ex post moral haz- ard, i.e., when illness severity cannot be observed by insurers and policyholders decide for themselves on their health expenditures. The trade-o¤ 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 in- surers' 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: optimal control; health insurance; ex post moral hazard; audit; background risk (search for similar items in EconPapers)
Date: 2018-07
New Economics Papers: this item is included in nep-hea, nep-ias and nep-mic
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Published in Geneva Risk and Insurance Review, 2018, 43 (2), pp.137-185. ⟨10.1057/s10713-018-0034-y⟩

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DOI: 10.1057/s10713-018-0034-y

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