TY  - JOUR
AU  - Lakdawalla,Darius
AU  - Sood,Neeraj
TI  - Health Insurance as a Two-Part Pricing Contract
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12681
PY  - 2006
Y2  - November 2006
UR  - http://www.nber.org/papers/w12681
L1  - http://www.nber.org/papers/w12681.pdf
N1  - Author contact info:
Darius N. Lakdawalla
Schaeffer Center for Health Policy and Economics
University of Southern California
3335 S. Figueroa St, Unit A
Los Angeles, CA 90089-7273


Los Angeles, CA 90
Tel: 213/740-6012
E-Mail: dlakdawa@healthpolicy.usc.edu

Neeraj Sood
Department of Clinical Pharmacy
USC School of Pharmacy
1985 Zonal Avenue
Los Angeles, CA 90033
Tel: 310/393-0411
Fax: 310/260-8156
E-Mail: nsood@usc.edu
M3  - presented at "Health Care Program Meeting", October 20, 2006
AB  - Monopolies appear throughout health care markets, as a result of patents, limits to the extent of the market, or the presence of unique inputs and skills.  In the health care industry, however, the deadweight costs of monopoly may be small or even absent.  Health insurance, frequently implemented as an ex ante premium coupled with an ex post co-payment per unit consumed, effectively operates as a two-part pricing contract.  This allows monopolists to extract consumer surplus without inefficiently constraining quantity.  This view of health insurance contracts has several implications:  (1) Low ex post copayments to insured consumers substantially reduce deadweight losses from medical care monopolies -- we calculate, for instance, that the presence of health insurance lowers monopoly loss in the US pharmaceutical market by 82 percent; (2) Price regulation or break-up of health care monopolies may be inferior to laissez-faire or simple redistribution of monopoly profits; and (3) Promoting efficiency in the health insurance market can reduce static losses in the goods market while improving the dynamic efficiency of innovation.
ER  -