Increase copays and increase medical spending?

Most economists believe that increasing the price of an item will decrease demand for the item. Health care is no different from any other good. If you increase the copayment or coinsurance rate, people will consume fewer medical services. The famous RAND Health Insurance Experiment (HIE) demonstrated that higher coinsurance rates discourage medical care consumption.…

The doctor as a double agent

In modern medicine, doctors are agents for two distinct groups. The physician is an agent for the patient, but also an agent for insurance companies-especially in the managed care settings.  In balancing both relationships, the doctor must juggle the conflicting principal-agent problems of information asymmetry and third party payment.  Ake Blomqvist develops an interesting theoretical model to…

Measuring adverse selection in managed health care

Introduction  Much of health care today is paid for by managed care plans.  If the managed care plans are profit maximizers–which I assume them to be–then they face a tradeoff.  By offering a lower quality of care, they will make more money; but lowering the quality of care reduces the demand for their insurance product. …