DP10199 Basic versus supplementary health insurance: moral hazard and adverse selection

Author(s): Jan Boone
Publication Date: October 2014
Keyword(s): adverse selection, cost effectiveness, moral hazard, public vs private insurance, universal basic health insurance, voluntary supplementary insurance
JEL(s): D82, H51, I13
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=10199

This paper introduces a tractable model of health insurance with both moral hazard and adverse selection. We show that government sponsored universal basic insurance should cover treatments with the biggest adverse selection problems. Treatments not covered by basic insurance can be covered on the private supplementary insurance market. Surprisingly, the cost effectiveness of a treatment does not affect its priority to be covered by basic insurance.