DP16238 Coinsurance vs. copayments: reimbursement rules for a monopolistic medical product with competitive health insurers

Author(s): Helmuth Cremer, Jean-Marie Lozachmeur
Publication Date: June 2021
Keyword(s): copayments, ex post moral hazard, health insurance competition, Imperfect Competition
JEL(s): I11, I13, I18
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16238

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.