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Insurance access and demand response: Pricing and welfare implications

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  • Besanko, David
  • Dranove, David
  • Garthwaite, Craig

Abstract

We present a model in which health insurance allows liquidity-constrained patients access to otherwise unaffordable treatments. A monopolist’s profit-maximizing price for an insured treatment is greater (for any cost sharing) than it would be if the treatment was not covered. Consumer surplus may also be less. These results are based on a different mechanism than would operate in a standard moral hazard model. Our model also provides an economic rationale for the common claim that pharmaceutical firms set prices that exceed the value their products create. We show this problem is exacerbated when health insurance covers additional monopoly-provided services.

Suggested Citation

  • Besanko, David & Dranove, David & Garthwaite, Craig, 2020. "Insurance access and demand response: Pricing and welfare implications," Journal of Health Economics, Elsevier, vol. 73(C).
    • Handle: RePEc:eee:jhecon:v:73:y:2020:i:c:s0167629619305831
    DOI: 10.1016/j.jhealeco.2020.102329
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    References listed on IDEAS

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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Chris Sampson’s journal round-up for 5th October 2020
      by Chris Sampson in The Academic Health Economists' Blog on 2020-10-05 11:00:05

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    More about this item

    Keywords

    Pharmaceutical prices; Health insurance access; Liquidity constraints; Complementary monopoly;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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