Does the Market Choose Optimal Health Insurance Coverage?

TILEC Discussion Paper No. 2013-008

CentER Discussion Paper Series No. 2013-023

40 Pages Posted: 28 Mar 2013

See all articles by Jan Boone

Jan Boone

Tilburg University - Center for Economic Research (CentER); Centre for Economic Policy Research (CEPR); TILEC

Multiple version iconThere are 2 versions of this paper

Date Written: March 25, 2013

Abstract

Consumers, when buying health insurance, do not know the exact value of each treatment that they buy coverage for. This leads them to overvalue some treatments and undervalue others. We show that the insurance market cannot correct these mistakes. This causes research labs to overinvest in treatments that hardly add value compared to current best practice. The government can stimulate R&D in breakthrough treatments by excluding treatments with low value added from health insurance coverage. If the country is rich enough such a government intervention in a private health insurance market raises welfare.

Keywords: cost effectiveness analysis, pharmaceutical research and development

JEL Classification: I13, I18, D4

Suggested Citation

Boone, Jan, Does the Market Choose Optimal Health Insurance Coverage? (March 25, 2013). TILEC Discussion Paper No. 2013-008, CentER Discussion Paper Series No. 2013-023, Available at SSRN: https://ssrn.com/abstract=2240172 or http://dx.doi.org/10.2139/ssrn.2240172

Jan Boone (Contact Author)

Tilburg University - Center for Economic Research (CentER) ( email )

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Centre for Economic Policy Research (CEPR)

London
United Kingdom

TILEC ( email )

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Tilburg, 5000 LE
Netherlands

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