Insurance access and demand response: Pricing and welfare implications

David Besanko, David Dranove*, Craig Garthwaite

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

We present a model in which health insurance allows liquidity-constrained patients access to otherwise unaffordable treatments. A monopolist's profit-maximizing price for an insured treatment is greater (for any cost sharing) than it would be if the treatment was not covered. Consumer surplus may also be less. These results are based on a different mechanism than would operate in a standard moral hazard model. Our model also provides an economic rationale for the common claim that pharmaceutical firms set prices that exceed the value their products create. We show this problem is exacerbated when health insurance covers additional monopoly-provided services.

Original languageEnglish (US)
Article number102329
JournalJournal of Health Economics
Volume73
DOIs
StatePublished - Sep 2020

Keywords

  • Complementary monopoly
  • Health insurance access
  • Liquidity constraints
  • Pharmaceutical prices

ASJC Scopus subject areas

  • Health Policy
  • Public Health, Environmental and Occupational Health

Fingerprint Dive into the research topics of 'Insurance access and demand response: Pricing and welfare implications'. Together they form a unique fingerprint.

Cite this