Integrated Insurance Design in the Presence of Multiple Medical Technologies

Dana Goldman, Tomas Philipson

NBER Working Paper No. 12870
Issued in January 2007
NBER Program(s):Health Economics

The classic theory of moral hazard concerns the insurance of a single good and predicts that co-insurance is larger when the elasticity of demand is higher and when small risks are insured. We extend this analysis to the insurance of multiple goods; for example, the simultaneous insurance of medical services and prescription drugs. We show that when multiple goods are either complements or substitutes--so that a change in co-insurance for one service affects the demand of others--the classic moral hazard results do not hold. For example, the single good model would predict high co-payments for prescription drugs since drug demand is elastic and of modest financial risk. However, a model of multi-good insurance suggests such drug coverage may optimally involve zero or even negative co-insurance when it is a substitute to other services insured such as hospital care or physician services. We summarize some of the empirical evidence in support of markets adopting optimal integrated pricing structures rather than individually optimal pricing structures.

download in pdf format
   (73 K)

email paper

The NBER Bulletin on Aging and Health provides summaries of publications like this.  You can sign up to receive the NBER Bulletin on Aging and Health by email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w12870

Published: Dana Goldman & Tomas J. Philipson, 2007. "Integrated Insurance Design in the Presence of Multiple Medical Technologies," American Economic Review, American Economic Association, vol. 97(2), pages 427-432, May. citation courtesy of

Users who downloaded this paper also downloaded* these:
Chandra, Gruber, and McKnight w12972 Patient Cost-Sharing, Hospitalization Offsets, and the Design of Optimal Health Insurance for the Elderly
Baicker, Mullainathan, and Schwartzstein w18468 Behavioral Hazard in Health Insurance
Jena and Philipson w15032 Endogenous Cost-Effectiveness Analysis in Health Care Technology Adoption
Philipson and Zanjani w19005 Economic Analysis of Risk and Uncertainty induced by Health Shocks: A Review and Extension
Gaynor, Li, and Vogt w12758 Is Drug Coverage a Free Lunch? Cross-Price Elasticities and the Design of Prescription Drug Benefits
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us