Health Insurance Theory: The Case of the Missing Welfare Gain

Posted: 17 Jun 2007

See all articles by John A. Nyman

John A. Nyman

University of Minnesota - Twin Cities - Division of Health Policy and Management

Abstract

An important source of value is missing from the conventional welfare analysis of moral hazard, namely, the effect of income transfers (from those who purchase insurance and remain healthy to those who become ill) on purchases of medical care. Income transfers are contained within the price reduction that is associated with standard health insurance. However, in contrast to the income effects contained within an exogenous price decrease, these income transfers act to shift out the demand for medical care. As a result, the consumer's willingness to pay for medical care increases and the resulting additional consumption is welfare increasing.

Keywords: moral hazard, welfare, health insurance

JEL Classification: I12, D60, G22

Suggested Citation

Nyman, John A., Health Insurance Theory: The Case of the Missing Welfare Gain. iHEA 2007 6th World Congress: Explorations in Health Economics Paper, Available at SSRN: https://ssrn.com/abstract=994267

John A. Nyman (Contact Author)

University of Minnesota - Twin Cities - Division of Health Policy and Management ( email )

Division of Health Services Research
516 Delaware St SE
Minneapolis, MN 55455
United States
651 303 4932 (Phone)
612-624-2196 (Fax)

HOME PAGE: http://www.sph.umn.edu/Faculty/Nyman.htm

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