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Health insurance: Medical treatment vs disability payment

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  • Asheim, Geir B.
  • Emblem, Anne Wenche
  • Nilssen, Tore

Abstract

We present arguments for treating health insurance and disability insurance in an integrated manner in economic analysis, based on a model where each individual's utility depends on both consumption and health and her income depends on her earning ability. When purchasing insurance, she may choose a contract that offers less than full medical treatment. We find that high-ability individuals demand full recovery and equalize utility across states, while low-ability individuals demand partial treatment and cash compensation and suffer a loss in utility if ill. Our results carry over to the case where health states are not observable.

Suggested Citation

  • Asheim, Geir B. & Emblem, Anne Wenche & Nilssen, Tore, 2010. "Health insurance: Medical treatment vs disability payment," Research in Economics, Elsevier, vol. 64(3), pages 137-145, September.
    • Handle: RePEc:eee:reecon:v:64:y:2010:i:3:p:137-145
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