Arrow's theorem of the deductible: moral hazard and stop-loss in health insurance
(2013) Journal of Risk and Uncertainty — Vol. 47, n° 2, p. 147-163 (2013)
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- 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.
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Dreze, J., & Schokkaert, E. (2013). Arrow’s theorem of the deductible: moral hazard and stop-loss in health insurance. Journal of Risk and Uncertainty, 47(2), 147-163. https://doi.org/10.1007/s11166-013-9177-5 (Original work published 2013)