Insurance Structure and Health Investment

Abstract

The structure of health insurance does not compensate insurers for long-term investments in prevention, such as those against chronic disease. This paper explores the legal structure of chronic disease treatment by insurers, illustrates the failure of the associated incentives, and explores possible improvements and recommends that subsequent insurers (including Medicare) have an obligation to compensate the prior insurer for the averted expenses on diseases that were expected but did not occur.

Keywords: Health Insurance, Adverse Selection, Moral Hazard, Medicare

JEL Classification: G22, G28, H51, H55, I18, K32