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Title: Coinsurance vs. copayments: reimbursement rules for a monopolistic medical product with competitive health insurers

Author(s): Helmuth Cremer and Jean-Marie Lozachmeur

Publication Date: June 2021

Keyword(s): copayments, ex post moral hazard, health insurance competition and Imperfect Competition

Programme Area(s): Public Economics

Abstract: This paper studies a market for a medical product in which there is perfect competition among health insurers, while the good is sold by a monopolist. Individuals differ in their severity of illness and there is ex post moral hazard. We consider two regimes: one in which insurers use coinsurance rates (ad valorem reimbursements) and one in which insurers use copayments (specific reimbursements). We show that the induced equilibrium with copayments involves a lower producer price and a higher level of welfare for consumers. This results provides strong support for a reference price based reimbursement policy.

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Bibliographic Reference

Cremer, H and Lozachmeur, J. 2021. 'Coinsurance vs. copayments: reimbursement rules for a monopolistic medical product with competitive health insurers'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=16238