Basic versus supplementary health insurance: Moral hazard and adverse selection ¬リニ

a r t i c l e i n f o JEL classification: I13 D82 H51 Keywords: Universal basic health insurance Voluntary supplementary insurance Public vs. private insurance Adverse selection Moral hazard Cost effectiveness This paper introduces a tractable model of health insurance with both moral hazard and adverse selection. We show that government sponsored universal basic insurance should cover treatments with the biggest adverse selection problems. Treatments not covered by basic insurance can be covered on the private supplementary insurance market. Surprisingly, the cost effectiveness of a treatment does not affect its priority to be covered by basic insurance. This paper considers a health insurance system where the government sponsors universal basic health insurance and private parties offer voluntary supplementary insurance. The question we analyze is: which treatments should be covered by insurance and how (i.e. basic vs. supplementary insurance)? A well known intuition is that basic insurance can battle adverse selection problems but not moral hazard. In the words of Cutler and Zeckhauser (2000), pp. 588: " Moral hazard is a significant concern in insurance policies but it is not one that necessarily argues for government intervention. Government insurance policies … may engender just as much moral hazard as private insurance policies ". Universal basic insurance by being applied to everyone can overcome adverse selection. This reasoning implies that basic insurance should cover treatments that suffer most from adverse selection. However, the literature on cost effectiveness analysis (see, for instance, Drummond et al., 2005; Gold et al., 1996, for overviews) suggests that the government should give priority to treatments that give the highest health gain per euro spent and cover these by basic insurance. " Many health systems employ health technology assessment … (for example, cost effectiveness analysis) to determine what the publicly financed benefits package should cover " , in the words of Stabile and Thomson (2014, pp. 508). To analyze this question, we extend the Rothschild and Stiglitz, (1976) (RS) insurance model to include moral hazard and a number of different treatments. We show that a welfare maximizing government covers treatments by basic insurance where the adverse selection problems are biggest. Neither moral hazard nor (surprisingly) cost effectiveness affect the priority of a treatment for coverage by basic insurance. That is, moral hazard plays no role in whether (extensive margin) or how a treatment should be insured. Co-payments for a treatment increase and hence insurance decreases …