Optimal design of health insurance plans
Abstract/Contents
- Abstract
- High deductible health insurance plans have been advocated as a measure to control rising healthcare expenditure, by reducing the moral hazard associated with 3rd party insurance and encouraging cost-effective behavior. Despite the increasing use of demand-side cost-sharing, the optimal design of health insurance schemes is not very well understood nor easy to apply. As such, economic theory has not had a major influence on design of health insurance schemes. This dissertation examines aspects of designing and implementing high deductible insurance schemes. First, I examine the optimal coinsurance rates of primary prevention, diagnostic services and office visits. In many observed health plans, these services are often exempt from deductibles. The Affordable Care Act also mandates that private health plans must cover a stipulated list of preventive services at zero coinsurance with no deductible. I show that optimal coinsurance rates for primary prevention are always higher than the coinsurance rates for associated treatment for risk-neutral individuals; and if the uninsured portion of treatment expenditure is sufficiently large or probability of illness is sufficiently small for risk-averse individuals. This probability is given by the threshold under which a risk-averse individual will undertake more prevention. We also identify similar thresholds for diagnostic services and they show that optimal coinsurance rates are always higher than associated treatment coinsurance in most circumstances. These results suggest that additional justifications have to be sought in setting prevention and diagnostic coinsurance below that of treatment. This dissertation also develops an easily applicable formula for optimal nonlinear coinsurance rates using a perturbation method. This method has the advantage of being extended to solve optimal deductible levels with fixed coinsurance rates as compared to Blomqvist(1997)'s derivation using optimal control theory. The application of this formula to observed health insurance plans, distribution of expenditures and risk aversion provides maximum bounds (in absolute terms) for elasticity estimates. Similarly from elasticity estimates, we can also obtain lower bounds of risk aversion. I apply these formulas to generate optimal coinsurance rates and deductible levels for observed expenditure distributions and elasticities in the RAND HIE. Finally, I study Medical Savings Accounts (MSAs) which are usually coupled to high deductible health insurance schemes. The effectiveness of MSAs depends on the extent to which consumers value Medisave dollars less compared to cash dollars because of restrictions imposed on the use of MSAs. Using individual-level data of hospital ward choice in Singapore, we estimate that consumers value Medisave dollars at 80 cents to a dollar in cash.
Description
| Type of resource | text |
|---|---|
| Form | electronic; electronic resource; remote |
| Extent | 1 online resource. |
| Publication date | 2012 |
| Issuance | monographic |
| Language | English |
Creators/Contributors
| Associated with | Tan, Jek Chen Kelvin |
|---|---|
| Associated with | Stanford University, Department of Management Science and Engineering |
| Primary advisor | Bhattacharya, Jay |
| Thesis advisor | Bhattacharya, Jay |
| Thesis advisor | Enthoven, Alain C, 1930- |
| Thesis advisor | Shachter, Ross D |
| Advisor | Enthoven, Alain C, 1930- |
| Advisor | Shachter, Ross D |
Subjects
| Genre | Theses |
|---|
Bibliographic information
| Statement of responsibility | Kelvin Bryan Tan. |
|---|---|
| Note | Submitted to the Department of Management Science and Engineering. |
| Thesis | Thesis (Ph.D.)--Stanford University, 2012. |
| Location | electronic resource |
Access conditions
- Copyright
- © 2012 by Jek Chen Kelvin Tan
- License
- This work is licensed under a Creative Commons Attribution Non Commercial 3.0 Unported license (CC BY-NC).
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