Venue: The Fuqua School of Business, Duke University, 1 Towerview Drive, Durham, NC 27708-0120

 

Presentation

Optimal Health Insurance for Multiple Goods and Time Periods

Authors: Randall P. Ellis(Boston University), Shenyi Jiang(Boston University), Willard G. Manning(The University of Chicago)

Presenter: Willard Manning (University of Chicago )

Discussant: Kosali Simon (Cornell University)

Session: Health Care Insurance: Ideas for Innovation

Room: Classroom B

When: Tuesday 10:30 a.m. - noon

This paper reexamines the efficiency-based arguments for optimal health insurance, extending the classic analysis to consider multiple treatment goods and multiple periods. Using a utility-based framework, we reconfirm the conventional tradeoff between risk aversion and moral hazard for insuring treatment goods. Uncompensated health losses that reduce effective income provide a new efficiency-based argument for generous insurance, and correlated errors and gross substitutes are also shown to reduce optimal cost shares on treatment. In a multi-period model savings complicate the optimal insurance rules but positively serially correlated errors generally imply improved coverage is desirable.

After deriving theoretical results, we use empirical data to examine the empirical significance of the contemporaneous correlations across goods, and correlations over time. We focus on three broad aggregates of health treatment spending: inpatient, outpatient, and pharmaceuticals. Among the more interesting results is that our model provides a rationale for covering pharmaceuticals more fully than is implied by static models, because it is relatively highly correlated over time.