IDEAS home Printed from https://ideas.repec.org/a/bpj/bejeap/v18y2018i1p10n3.html
   My bibliography  Save this article

Public Health Insurance with Monopolistically Competitive Providers and Optional Spot Sales

Author

Listed:
  • Sorek Gilad

    (Department of Economics, Auburn University, Auburn, Alabama, USA)

  • Randolph Beard T.

    (Department of Economics, Auburn University, Auburn, Alabama, USA)

Abstract

We study the implications of extending public-insurance coverage over differentiated medical products of the same therapeutic group to market outcomes. The public insurer can set the reimbursement level for medical providers and the copayment for the insured for medical care provided under the policy coverage, but cannot directly control providers’ spot sales (outside of insurance) price. In this setup, the price offered by the public insurer to medical providers must maintain their reservation profit from selling on the spot market directly to consumers. We show that the public insurer can manipulate this reservation profit by setting the copayment rate, and thereby promote market welfare while increasing consumers’ surplus due to lower medical prices and lower market entry. The results survive generalizations including moral hazard and incomplete insurance coverage.

Suggested Citation

  • Sorek Gilad & Randolph Beard T., 2018. "Public Health Insurance with Monopolistically Competitive Providers and Optional Spot Sales," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 18(1), pages 1-10, January.
    • Handle: RePEc:bpj:bejeap:v:18:y:2018:i:1:p:10:n:3
    DOI: 10.1515/bejeap-2016-0309
    as

    Download full text from publisher

    File URL: https://doi.org/10.1515/bejeap-2016-0309
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.
    File URL: https://libkey.io/10.1515/bejeap-2016-0309?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. G. M.P. Swann, 2009. "The Economics of Innovation," Books, Edward Elgar Publishing, number 13211.
    2. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
    3. Lakdawalla, Darius & Sood, Neeraj, 2009. "Innovation and the welfare effects of public drug insurance," Journal of Public Economics, Elsevier, vol. 93(3-4), pages 541-548, April.
    4. Lakdawalla, Darius & Sood, Neeraj, 2013. "Health insurance as a two-part pricing contract," Journal of Public Economics, Elsevier, vol. 102(C), pages 1-12.
    5. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    6. Vaithianathan, Rhema, 2006. "Health insurance and imperfect competition in the health care market," Journal of Health Economics, Elsevier, vol. 25(6), pages 1193-1202, November.
    7. Brekke, Kurt R. & Canta, Chiara & Straume, Odd Rune, 2016. "Reference pricing with endogenous generic entry," Journal of Health Economics, Elsevier, vol. 50(C), pages 312-329.
    8. Rudy Douven & Rein Halbersma & Katalin Katona & Victoria Shestalova, 2014. "Vertical Integration and Exclusive Behavior of Insurers and Hospitals," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 23(2), pages 344-368, June.
    9. Ehrlich, Isaac & Becker, Gary S, 1972. "Market Insurance, Self-Insurance, and Self-Protection," Journal of Political Economy, University of Chicago Press, vol. 80(4), pages 623-648, July-Aug..
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gilad Sorek & Randolph T. Beard, 2016. "Regulating from the Demand Side: Public Health Insurance with Monopolistically Competitive Providers and Optional Spot Sales," Auburn Economics Working Paper Series auwp2016-06, Department of Economics, Auburn University.
    2. Alice M. Ellyson & Anirban Basu, 2018. "The New Prescription Drug Paradox: Pipeline Pressure and Rising Prices," NBER Working Papers 24387, National Bureau of Economic Research, Inc.
    3. Brekke, Kurt R. & Dalen, Dag Morten & Straume, Odd Rune, 2022. "Paying for pharmaceuticals: uniform pricing versus two-part tariffs," Journal of Health Economics, Elsevier, vol. 83(C).
    4. Leila Agha & Soomi Kim & Danielle Li, 2020. "Insurance Design and Pharmaceutical Innovation," NBER Working Papers 27563, National Bureau of Economic Research, Inc.
    5. Boone, Jan, 2013. "Does the market choose optimal health insurance coverage?," CEPR Discussion Papers 9420, C.E.P.R. Discussion Papers.
    6. Boone, J., 2013. "Does the Market Choose Optimal Health Insurance Coverage," Other publications TiSEM f7691fbf-f770-4714-b1b4-1, Tilburg University, School of Economics and Management.
    7. Tomas J. Philipson & George Zanjani, 2013. "Economic Analysis of Risk and Uncertainty induced by Health Shocks: A Review and Extension," NBER Working Papers 19005, National Bureau of Economic Research, Inc.
    8. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899, September.
    9. Inga Heiland, 2017. "Five Essays on International Trade, Factor Flows and the Gains from Globalization," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 74.
    10. Grossmann, Volker, 2013. "Do cost-sharing and entry deregulation curb pharmaceutical innovation?," Journal of Health Economics, Elsevier, vol. 32(5), pages 881-894.
    11. Javad Moradpour & Aidan Hollis, 2021. "The economic theory of cost‐effectiveness thresholds in health: Domestic and international implications," Health Economics, John Wiley & Sons, Ltd., vol. 30(5), pages 1139-1151, May.
    12. Hostenkamp, Gisela, 2013. "Do follow-on therapeutic substitutes induce price competition between hospital medicines? Evidence from the Danish hospital sector," Health Policy, Elsevier, vol. 111(1), pages 68-77.
    13. David, Maia & Nimubona, Alain-Désiré & Sinclair-Desgagné, Bernard, 2011. "Emission taxes and the market for abatement goods and services," Resource and Energy Economics, Elsevier, vol. 33(1), pages 179-191, January.
    14. Lundberg, Alexander, 2015. "Non-monotonic network effects and market entry," Economics Letters, Elsevier, vol. 137(C), pages 146-149.
    15. Liran Einav & Amy Finkelstein & Maria Polyakova, 2018. "Private Provision of Social Insurance: Drug-Specific Price Elasticities and Cost Sharing in Medicare Part D," American Economic Journal: Economic Policy, American Economic Association, vol. 10(3), pages 122-153, August.
    16. Rey, Patrick & Salant, David, 2012. "Abuse of dominance and licensing of intellectual property," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 518-527.
    17. Lakdawalla, Darius & Sood, Neeraj, 2013. "Health insurance as a two-part pricing contract," Journal of Public Economics, Elsevier, vol. 102(C), pages 1-12.
    18. Stole, Lars A., 2007. "Price Discrimination and Competition," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 34, pages 2221-2299, Elsevier.
    19. Prantl, Susanne & Spitz-Oener, Alexandra, 2009. "How does entry regulation influence entry into self-employment and occupational mobility?," SFB 649 Discussion Papers 2009-034, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    20. Matsumura, Toshihiro & Okamura, Makoto, 2006. "A note on the excess entry theorem in spatial markets," International Journal of Industrial Organization, Elsevier, vol. 24(5), pages 1071-1076, September.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:bejeap:v:18:y:2018:i:1:p:10:n:3. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.degruyter.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.