Compassion and cost: The dual role of reference pricing

Miyase Yesim Köksal ()
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Miyase Yesim Köksal: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: Box 640, SE 40530 GÖTEBORG

No 498, Working Papers in Economics from University of Gothenburg, Department of Economics

Abstract: Providing health insurance involves a trade-off between the benefits from risk spreading and the costs due to moral hazard. Focusing on pharmaceuticals consumption, this paper examines theoretically whether reference pricing, requiring individuals to pay the price difference if, in this case, they don’t buy the cheaper parallel imported drug, can ease this trade-off – an issue which has not previously been pointed out in the debate on health insurance. The results indicate that, if individuals are extremely risk-averse, a policy shift from coinsurance to reference pricing would do this by providing more insurance while decreasing moral hazard.

Keywords: reference pricing; moral hazard; pharmaceuticals; parallel imports (search for similar items in EconPapers)
JEL-codes: D82 F13 I10 L12 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2011-05-18
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