The theory of demand for health insurance / John A. Nyman.

Format:

Book

Author/Creator:

Nyman, John A.

Language:

English

Subjects (All):

Health insurance--United States.

Health insurance.

United States.

Demand (Economic theory).

Medical economics--United States.

Medical economics.

Physical Description:

xiv, 201 pages : illustrations ; 24 cm

Place of Publication:

[Stanford, Calif.] : Stanford Economics and Finance, [2003]

Summary:

Why do people buy health insurance? Conventional theory holds that people purchase insurance because they prefer the certainty of paying a small premium to the risk of getting sick and paying a large medical bill. This book presents a new theory of consumer demand for health insurance. It holds that people purchase insurance to obtain additional " income" when they become ill.

Contents:

Controversies 1

Overview of the New Theory 2

Intuition 5

2. Conventional Theory and Anomalies 8

History 8

von Neumann-Morgenstern (vNM) Utility Function 12

Conventional Expected Utility Theory 16

The Moral Hazard Welfare Loss 19

Anomalies 21

Moral Hazard Is Welfare Decreasing 21

Contingent-Claims Insurance Payoffs Have No Income Effects 22

Consumers Prefer Certain Losses 24

Risk Preferences Derive Only from Diminishing Marginal Utility 25

Insurance at Current Coverage Parameters Is Welfare Decreasing 26

3. New Theory 30

Model 30

Graphical Model 34

Decision to Purchase Insurance 37

Extreme Cases and Examples 38

Contingent-Claims versus Price-Payoff Insurance Contracts 41

The Physician and Substitutability of Medical Care for Other Goods and Services 43

Payoffs, Treatment Costs, and Full Coverage 44

Adverse Selection and Moral Hazard 44

Welfare Consequences at the Margin 46

4. Expected Utility Theory from a Quid Pro Quo Perspective 49

Expected Utility Theory Respecified 49

Derivation of the Quid Pro Quo Specification 53

Prospect Theory 54

Focusing on the Insurance Contract 56

Additional Considerations 58

Importance and Implications 60

Appendix The Gain Specification 63

5. Access Value of Health Insurance 67

Model 68

Prevalence of the Access Motive 70

Access Valuation of a Given Procedure 71

Estimating Willingness to Pay 72

Valuing Outcomes 73

Specific Disease Example 74

Access Value from Cost-Utility League Tables 75

Access Value Using the NMES 77

Charity Care 78

Importance of the Access Motive 79

6. Welfare Loss from Moral Hazard 81

Ex Post Moral Hazard 81

Pauly's Moral Hazard Welfare Loss 82

Overview of the Rest of the Chapter 84

Taxonomy of Price Change Decompositions 84

Hicksian Decomposition Holding Utility Constant 85

Friedman/Slutsky Decomposition Holding Real Income Constant 86

New Decomposition Holding Nominal Income Constant 87

Welfare Loss from Insurance 88

Mathematical Expression of the Welfare Loss 90

Marshallian Demand Curve Price Effect 91

Hicksian Demand Curve Price Effect 91

New Demand Curve Price Effect 92

Estimating the Welfare Loss from the Price Effect 92

Coinsurance Rate 93

Marshallian Price Elasticity of Demand 93

Medical Care Spending Share 95

Income Elasticity of Demand 97

Estimates of the Relative Welfare Loss 98

Implications 99

7. Welfare Gain from Moral Hazard 102

Moral Hazard as Specific Health Care 103

Evaluating Moral Hazard 107

An Estimate of the Welfare Gain 109

Literature on Health Insurance and Health 110

Estimating the Welfare Gain 112

Refinements of the Analysis 114

The Welfare Gain from Moral Hazard Diagrammatically 116

8. Why Health Insurance Is Sometimes Not Purchased 122

Charity and Medicaid 123

Risk 126

Risk and the Very Poor 126

Digression on Gambling and Insurance 128

Separating Risk Preferences from the Bernoulli Utility Function 133

Loading Fees and Premiums 136

Price-Related Moral Hazard 137

Adverse Selection 139

Physician-Induced Demand 140

9. Policy Implications 143

Cost Containment 143

Cost Sharing 144

Coinsurance and Moral Hazard 145

Calculating the Effect of Coinsurance on Efficient Moral Hazard 147

Rice's Theory 149

Managed Care 151

A Price-Reduction Strategy 152

Optimal Health Insurance Design 153

Insuring the Uninsured 155

The Case for Intervention: Medicare 156

The Case for Tax Subsidies 157

Technology Growth as Moral Hazard 159

The Theory Summarized 164

The Price-Payoff Mechanism, The Value of Health Care, and National Health Insurance 166

Potential Weaknesses 167

Different Income Elasticities for the Healthy and Ill 167

Blank Check Argument 169

Consumer's Income Payoff Test 170

Health Care for the Healthy 170

Limitations 171

Future Empirical Work 172.

Notes:

Includes bibliographical references (pages [180]-193) and index.

ISBN:

0804744882

OCLC:

50198726