NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Insurance as Delegated Purchasing: Theory and Evidence from Health Care

Robin McKnight, Jonathan Reuter, Eric Zitzewitz

NBER Working Paper No. 17857
Issued in February 2012
NBER Program(s):   AG   HC   HE

Household demand for actuarially unfair insurance against small risks has long puzzled economists. One way to potentially rationalize this demand is to recognize that (non-life) insurance is an incentive-compatible means of engaging an expert buyer. To quantify the benefits of expert buying, we compare prices paid by the insured and uninsured for health care. In categories of health care where uncompensated care is more difficult to obtain (drugs, doctor office visits, and hospital outpatient visits), we find that insurers pay 10-20% less than the uninsured. For forms of care where payment by the uninsured is more likely to be negotiated after services are rendered (hospitalizations and emergency room visits) the uninsured pay about 30% less on average, due largely to the nontrivial share of uninsured who pay 5% or less of their billed charges. At least in settings where free services are difficult to obtain, expert buying is an important benefit of insurance. We discuss the implications of the delegated-purchasing view of insurance for con-sumer-driven health insurance and for self-insurance by employers.

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.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Information about Free Papers

You should expect a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Users who downloaded this paper also downloaded these:
Gabaix w17783 Boundedly Rational Dynamic Programming: Some Preliminary Results
Huckfeldt, Sood, Escarce, Grabowski, and Newhouse w17870 Effects of Medicare Payment Reform: Evidence from the Home Health Interim and Prospective Payment Systems
Aron-Dine, Einav, Finkelstein, and Cullen w17802 Moral Hazard in Health Insurance: How Important Is Forward Looking Behavior?
Courtemanche and Zapata w17893 Does Universal Coverage Improve Health? The Massachusetts Experience
Baicker, Mullainathan, and Schwartzstein w18468 Behavioral Hazard in Health Insurance
 
Publications
Activities
Meetings
Data
People
About

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

Contact Us