Incentivizing Efficient Utilization Without Reducing Access: The Case Against Cost-Sharing in Insurance

19 Pages Posted: 14 Jul 2017

See all articles by Markus Fels

Markus Fels

University of Dortmund - Department of Economics

Date Written: July 7, 2017

Abstract

Cost-sharing is regarded as an important tool to combat moral hazard in health insurance. Contrary to standard prediction, however, such requirements are found to reduce utilization both of efficient and of inefficient care. I employ a simple model that incorporates two possible explanations - consumer mistakes and limited access - to assess the welfare implications of different insurance designs. I find cost-sharing never to be an optimal solution as it produces two novel inefficiencies by limiting access. An alternative design, relying on bonuses, has no such side effects and achieves the same incentivization.

Keywords: Moral Hazard, Limited Access, Cost-Sharing, Insurance Rebates

JEL Classification: D82, I13, I14

Suggested Citation

Fels, Markus, Incentivizing Efficient Utilization Without Reducing Access: The Case Against Cost-Sharing in Insurance (July 7, 2017). Available at SSRN: https://ssrn.com/abstract=2998636 or http://dx.doi.org/10.2139/ssrn.2998636

Markus Fels (Contact Author)

University of Dortmund - Department of Economics ( email )

D-44221 Dortmund
Germany

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