TY  - JOUR
AU  - Goldman,Dana
AU  - Philipson,Tomas
TI  - Integrated Insurance Design in the Presence of Multiple Medical Technologies
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12870
PY  - 2007
Y2  - January 2007
UR  - http://www.nber.org/papers/w12870
L1  - http://www.nber.org/papers/w12870.pdf
N1  - Author contact info:
Dana Goldman
Schaeffer Center for Health Policy and Economics
University of Southern California
3335 S. Figueroa St, Unit A
Los Angeles, CA 90089-7273
Tel: (213) 821-7948
Fax: (213) 740-3460
E-Mail: dana.goldman@usc.edu

Tomas Philipson
Irving B. Harris Graduate School
of Public Policy Studies
University of Chicago
1155 E. 60th Street
Chicago, IL 60637
Tel: 773/502-7773
E-Mail: t-philipson@uchicago.edu
AB  - 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.
ER  -