Incentivizing Efficient Utilization Without Reducing Access: The Case Against Cost-Sharing in Insurance
19 Pages Posted: 14 Jul 2017
Date Written: July 7, 2017
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: Suggested Citation