Interactions between Social and Topping Up Insurance under ex-post Moral Hazard

Bell-Aldeghi, Rosalind (2019): Interactions between Social and Topping Up Insurance under ex-post Moral Hazard.

Abstract

As health expenditure and need for corresponding funding rises, resorting to topping up insurance can seem natural. Complementary and supplementary insurances are both topping up contracts and, as such, are treated as one in the theoretical literature on optimal insurance. We argue that distinguishing them is crucial, and should be considered carefully when defining policies impacting the structure of the health insurance system, as these two kinds of insurance can have opposite effects on social insurance coverage. \indent In this model, the optimal social insurance rate is defined endogenously and varies according to redistribution and the ex-post moral hazard characteristics of the insurance. This game has three stages and is solved through backward induction. The optimal social insurance rate is chosen first, by maximising social welfare. Second, individuals choose their private complementary and supplementary contracts. In the third stage they decide on their level of labour and consumption of health and other goods. \indent Results indicate that whereas the presence of complementary insurance decreases the optimal size of social insurance, the offset effects of supplementary insurance can improve welfare.

• Item Type: MPRA Paper
• Language: English
• Keywords: Social insurance; health insurance; ex-post moral hazard; topping up; redistribution.
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design; I - Health, Education, and Welfare > I1 - Health > I13 - Health Insurance, Public and Private; I - Health, Education, and Welfare > I1 - Health > I18 - Government Policy ; Regulation ; Public Health

References

Askenazy P, Dormont B, Geoffard PY, Paris V. Towards a More Efficient Health System. Les notes du conseil d’analyse économique 2013;No 8, July.

Arrow K. Uncertainty and the Welfare Economics of Medical Care. The American Economic Review 1963;53 (5): 941–73. https://doi.org/10.2307/1812044.

Arrow K. The Economics of Moral Hazard: Further Comment. The American Economic Review 1968;58 (3): 537–39. https://doi.org/10.2307/1813786.

Barigozzi F. Supplementary Insurance with Ex-Post Moral Hazard: Efficiency and Redistribution. Annales d’Économie et de Statistique 2006; No. 83/84 (July): 295–325. https://doi.org/10.2307/20079172.

Barros P, Siciliani L. 2011. Public and Private Sector Interface. In: Handbook of Health Economics. Elsevier. Volume 2, 2011, Pages 927-1001 https://doi.org/10.1016/B978-0-444-53592-4.00015-3

Boadway R, Leite-Monteiro M, Marchand M, Pestieau P. Social Insurance and Redistribution with Moral Hazard and Adverse Selection. The Scandinavian Journal of Economics 2006;108 (2): 279–98. https://doi.org/10.1111/j.1467-9442.2006.00446.x

Boone J. Basic versus Supplementary Health Insurance: Moral Hazard and Adverse Selection. Journal of Public Economics 2015;128 (August): 50–58. https://doi.org/10.1016/j.jpubeco.2015.05.009.

Boone J. Basic versus Supplementary Health Insurance: access to care and the role of cost effectiveness. Journal of Health Economics 2018;60: 53–74. https://doi.org/10.1016/j.jhealeco.2018.05.002.

Buchmueller TC, Couffinhal A, Grignon M, Perronnin M. Access to Physician Services: Does Supplemental Insurance Matter? Evidence from France. Health Economics 2004;13 (7): 669–87. https://doi.org/10.1002/hec.879.

Cremer H, Pestieau P. Redistributive Taxation and Social Insurance. International Tax and Public Finance 1996;3 (3): 281–95. https://doi.org/10.1007/BF00418945.

Feldstein M. Tax Incidence in a Growing Economy with Variable Factor Supply. Harvard Institute of Economic Research Discussion Paper no. 263, 1972.

Henriet D, Rochet JC. Is Public Health Insurance an Appropriate Instrument for Redistribution? Annales d’Économie et de Statistique 2006; No 83/84: 61‑88. https://doi.org/10.2307/20079163.

Jones AM, Koolman X, van Doorslaer E. The Impact of Having Supplementary Private Health Insurance on the Use of Specialists. Annales d’Économie et de Statistique 2006; No 83/84: 251‑75. https://doi.org/10.2307/20079170. Keane M, Stavrunova O. Adverse selection, moral hazard and the demand for Medigap insurance. Journal of Econometrics 2016;190 (1): 62‑78. https://doi.org/10.1016/j.jeconom.2015.08.002.

Manning WG, Newhouse JP, Duan N, Keeler EB, Leibowitz A. Health Insurance and the Demand for Medical Care: Evidence from a Randomized Experiment. The American Economic Review 1987;77 (3): 251‑77.

Manning WG, Marquis MS. Health Insurance: The Tradeoff between Risk Pooling and Moral Hazard. Journal of Health Economics 1996;15 (5): 609–39. https://doi.org/10.1016/S0167-6296(96)00497-3.

Marquis MS, Phelps CE. Demand for Supplementary Health Insurance. Santa Monica, Calif.: RAND Corporation, R-3285-HHS, 1985. As of December 12, 2018: https://www.rand.org/pubs/reports/R3285.html

Marquis MS, Phelps CE. Price Elasticity and Adverse Selection in the Demand for Supplementary Health Insurance. Economic Inquiry 1987;25 (2): 299–313. https://doi.org/10.1111/j.1465-7295.1987.tb00741.x.

McGuire TG. Chapter Five - Demand for Health Insurance, 2011. In: Pauly M, McGuire TG, Barros PP, Handbook of Health Economics. Vol. 2 of Handbook of Health Economics. Elsevier, pp. 317-396.

Mossialos E, Thomson SMS. Voluntary health insurance in the European Union. World Health Organization. Regional Office for Europe & European Observatory on Health Systems and Policies. Copenhagen: WHO Regional Office for Europe 2004. http://www.who.int/iris/handle/10665/107601

Nyman JA. The economics of moral hazard revisited. Journal of Health Economics 1999;18 (6): 811‑24. https://doi.org/10.1016/S0167-6296(99)00015-6.

Paris V, Devaux M, Wei L. Health Systems Institutional Characteristics: A Survey of 29 OECD Countries. OECD, Directorate for Employment, Labour and Social Affairs, OECD Health Working Papers 2010;50. https://doi.org/10.1787/5kmfxfq9qbnr-en.

Paris V, Hewlett E, Auraaen A, Alexa J, Simon L. Health Care Coverage in OECD Countries in 2012. OECD Health Working Papers 2016;88. https://doi.org/10.1787/5jlz3kbf7pzv-en.

Pauly, MV. The Economics of Moral Hazard: Comment. The American Economic Review 1968;58 (3): 531‑37. https://doi.org/10.2307/1813785.

Pestieau P. 2003. Social Insurance and Redistribution. In: Alternatives for Welfare Policy, edited by Torben M. Andersen and Per Molander, 238–54. Cambridge: Cambridge University Press, 2003. https://doi.org/10.1017/CBO9780511493508.011.

Petretto A. Optimal social health insurance with supplementary private insurance. Journal of Health Economics 1999;18 (6): 727‑45. https://doi.org/10.1016/S0167-6296(99)00017-X.

Rochet JC. Incentives, Redistribution and Social Insurance. The Geneva Papers on Risk and Insurance Theory 1991;16 (2): 143‑65. https://doi.org/10.1007/BF02386304.

Salanié B.The Economics of Taxation. The MIT Press, Cambridge, MA, second edition, November 2011. ISBN 978-0-262-01634-6.