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Compassion and cost: The dual role of reference pricing

Author

Listed:
  • Yesim Köksal, Miyase

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

Abstract
Providing health insurance involves a trade-off between the benefits from risk spreading and the costs due to moral hazard. Focusing on pharmaceuticals consumption, this paper examines theoretically whether reference pricing, requiring individuals to pay the price difference if, in this case, they don’t buy the cheaper parallel imported drug, can ease this trade-off – an issue which has not previously been pointed out in the debate on health insurance. The results indicate that, if individuals are extremely risk-averse, a policy shift from coinsurance to reference pricing would do this by providing more insurance while decreasing moral hazard.

Suggested Citation

  • Yesim Köksal, Miyase, 2011. "Compassion and cost: The dual role of reference pricing," Working Papers in Economics 498, University of Gothenburg, Department of Economics.
    • Handle: RePEc:hhs:gunwpe:0498
    as

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    File URL: http://hdl.handle.net/2077/25499
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    References listed on IDEAS

    as
    1. Brekke, Kurt R. & Grasdal, Astrid L. & Holms, Tor Helge, 2009. "Regulation and pricing of pharmaceuticals: Reference pricing or price cap regulation?," European Economic Review, Elsevier, vol. 53(2), pages 170-185, February.
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    9. Martin Feldstein & Jonathan Gruber, 1995. "A Major Risk Approach to Health Insurance Reform," NBER Chapters, in: Tax Policy and the Economy, Volume 9, pages 103-130, National Bureau of Economic Research, Inc.
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    11. Feldstein, Martin S, 1973. "The Welfare Loss of Excess Health Insurance," Journal of Political Economy, University of Chicago Press, vol. 81(2), pages 251-280, Part I, M.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    reference pricing; moral hazard; pharmaceuticals; parallel imports;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • I10 - Health, Education, and Welfare - - Health - - - General
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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