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- Title
Arrow's theorem of the deductible: Moral hazard and stop-loss in health insurance.
- Authors
Drèze, Jacques; Schokkaert, Erik
- Abstract
The logic of Arrow's theorem of the deductible, i.e. that it is optimal to focus insurance coverage on the states with largest expenditures, remains at work in a model with ex post moral hazard. The optimal insurance contract takes the form of a system of 'implicit deductibles', resulting in the same indemnities as a contract with full insurance above a variable deductible positively related to the elasticity of medical expenditures with respect to the insurance rate. In a model with a predefined ceiling on expenses, there is no reimbursement for expenses below the stop-loss amount. One motivation to have some insurance below the deductible arises if regular health care expenditures in a situation of standard health have a negative effect on the probability of getting into a state with large medical expenses.
- Subjects
HEALTH insurance; DEDUCTIBLES (Insurance); INSURANCE policies; INDEMNITY; INCOME tax deductions for medical expenses; INSURANCE rates; MEDICAL care costs; MATHEMATICAL models
- Publication
Journal of Risk & Uncertainty, 2013, Vol 47, Issue 2, p147
- ISSN
0895-5646
- Publication type
Article
- DOI
10.1007/s11166-013-9177-5