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Co-payment systems in health care; between moral hazard and risk reduction

Author

Listed:
  • Ed Westerhout

    (CPB Netherlands Bureau for Economic Policy Analysis)

  • Kees Folmer

Abstract

It is well-known that co-payments in health insurance may increase social welfare by reducing moral hazard. Considerably less is known about the form co-payment schemes should ideally take. This paper investigates what co-payment rate and co-payment maximum characterize the optimal scheme, i.e. the scheme that achieves the highest level of social welfare, within the class of two-part co-payment schemes of which the second part features a zero rate. It also quantifies the welfare losses that correspond with sub-optimal co-payment schemes. The paper uses a model with optimizing households that are risk-averse, exercise price-elastic demand and are aware of the kinks in their budget constraints. Numerical simulations with this model indicate that the optimal scheme combines a 80% rate with a maximum of about 600 euro. Sensitivity analysis shows that the maximum varies a lot with changes in basic parameters; the 80% value for the optimal co-payment rate is quite robust, though. The welfare losses that correspond to alternative co-payment schemes are generally quite small.

Suggested Citation

  • Ed Westerhout & Kees Folmer, 2007. "Co-payment systems in health care; between moral hazard and risk reduction," CPB Discussion Paper 78, CPB Netherlands Bureau for Economic Policy Analysis.
    • Handle: RePEc:cpb:discus:78
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    References listed on IDEAS

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    Cited by:

    1. Folmer, Cees & Westerhout, Ed, 2008. "Financing medical specialist services in The Netherlands: Welfare implications of imperfect agency," Economic Modelling, Elsevier, vol. 25(5), pages 946-958, September.
    2. Stenbacka Rune & Tombak Mihkel, 2018. "Optimal Reimbursement Policy in Health Care: Competition, Ownership Structure and Quality Provision," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 18(1), pages 1-19, January.
    3. Rune Stenbacka & Mihkel Tombak, 2014. "Optimal Co-Payment Policy In Health Care: Competition, Ownership Structure And Quality Provision," Working Papers 140004, Canadian Centre for Health Economics.
    4. Peter Zweifel, 2022. "Health economics explained through six questions and answers," Economic Affairs, Wiley Blackwell, vol. 42(1), pages 50-69, February.

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    More about this item

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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