The Effects of Capping Co-Insurance Payments

CentER Discussion Paper Series No. 2018-050

42 Pages Posted: 14 Dec 2018

See all articles by Ed Westerhout

Ed Westerhout

CPB Netherlands Bureau of Economic Policy Analysis; Tilburg University - Tilburg University School of Economics and Management

Kees Folmer

CPB Netherlands Bureau of Economic Policy Analysis

Date Written: November 22, 2018

Abstract

It is common to limit the cost sharing in health insurance schemes by a cap on co-insurance payments. This paper derives the economic and welfare effects of such a cap, adopting a model of which two features are crucial. First, health care demand is price-elastic. Second, demand is less elastic the worser the consumer’s health status. The paper derives that a cap induces optimizing health insurers to raise the co-insurance rate. This raises welfare in the aggregate, but part of the consumers do not share in this welfare gain. In particular, those with health spending close to the level at which co-insurance payments reach their maximum level suffer large welfare losses. We adopt a 3-state model to derive our results and a continuous-state model for a numerical illustration.

Keywords: Coinsurance, Health Insurance, Cap on Coinsurance Payments

JEL Classification: D60, H21, I18

Suggested Citation

Westerhout, Ed and Folmer, Kees, The Effects of Capping Co-Insurance Payments (November 22, 2018). CentER Discussion Paper Series No. 2018-050, Available at SSRN: https://ssrn.com/abstract=3289121 or http://dx.doi.org/10.2139/ssrn.3289121

Ed Westerhout (Contact Author)

CPB Netherlands Bureau of Economic Policy Analysis ( email )

P.O. Box 80510
2508 GM The Hague, 2585 JR
Netherlands

Tilburg University - Tilburg University School of Economics and Management ( email )

PO Box 90153
Tilburg, 5000 LE Ti
Netherlands

Kees Folmer

CPB Netherlands Bureau of Economic Policy Analysis ( email )

P.O. Box 80510
2508 GM The Hague, 2585 JR
Netherlands

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