The Theory of Demand for Health Insurance
Why do people buy health insurance? Conventional theory holds that people purchase insurance because they prefer the certainty of paying a small premium to the risk of getting sick and paying a large medical bill. Conventional theory also holds that any additional health care that consumers purchase because they have insurance is not worth the cost of producing it. Therefore, economists have promoted policies—copayments and managed care—to reduce consumption of this additional, seemingly low-value care.
This book presents a new theory of consumer demand for health insurance. It holds that people purchase insurance to obtain additional income when they become ill. In effect, insurance companies act to transfer insurance premiums from those who remain healthy to those who become ill. This additional income generates purchases of additional high-value care, often allowing sick persons to obtain life-saving care that they could not otherwise afford.
Regarding risk, the new theory relies on empirical studies showing that consumers actually prefer the risk of a large loss to incurring a smaller loss with certainty. Therefore, if consumers purchase insurance, it is not because they desire to avoid risk. Instead, the new theory suggests consumers simply pay a premium when healthy in exchange for a claim on additional income (effected when insurance pays for the medical care) if they become ill.
Health insurance is substantially more valuable to the consumer under the new theory. The new theory moreover implies that copayments and managed care—central health policies of the last 30 years—were directed at solving problems that largely did not exist. Because these policies either reduced the amount of income transferred to ill persons or limited access to valuable health care, they may have done more harm than good. The new theory also provides a solid theoretical justification for insuring the uninsured and for implementing national health insurance.
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Overview of the New Theory
Overview of the Book
Conventional Theory and Anomalies
Von NeumannMorgenstern vNM Utility Function
Conventional Expected Utility Theory
New Demand Curve Price Effect
Medical Care Spending Share
Income Elasticity of Demand
Estimates of the Relative Welfare Loss
Welfare Gain from Moral Hazard
The Moral Hazard Welfare Loss
ContingentClaims Insurance Payoffs Have No Income Effects
Consumers Prefer Certain Losses
Risk Preferences Derive Only from Diminishing Marginal Utility
Insurance at Current Coverage Parameters Is Welfare Decreasing
Decision to Purchase Insurance
Extreme Case and Examples
ContingentClaims versus PricePayoff Insurance Contracts
The Physician and Substitutability of Medical Care for Other Goods and Services
Payoffs Treatment Costs and Full Coverage
Welfare Consequences at the Margin
Expected Utility Theory from a Quid Pro Quo Perspective
Derivation of the Quid Pro Quo Specification
Focusing on the Insurance Contract
Importance and Implication
The Gain Specification
Access Value of Health Insurance
Prevalence of the Access Motive
Access Valuation of a Given Procedure
Estimating Willingness to Pay
Specific Disease Example
Access Value from CostUtility League Tables
Access Value Using the NMES
Importance of the Access Motive
Welfare Loss from Moral Hazard
Paulys Moral Hazard Welfare Loss
Overview of the Rest of the Chapter
Hicksian Decomposition Holding Utility Constant
FriedmanSlutsky Decomposition Holding Real Income Constant
New Decomposition Holding Nominal Income Constant
Welfare Loss from Insurance
Mathematical Expression of the Welfare Loss
Marshallian Demand Curve Price Effect
Moral Hazard as Specific Health Care
Evaluating Moral Hazard
An Estimate of the Welfare Gain
Literature on Health Insurance and Health
Estimating the Welfare Gain
Refinements of the Analysis
The Welfare Gain from Moral Hazard Diagrammatically
Why Health Insurance is Sometimes Not Purchased
Charity and Medicaid
Digression on Gambling and Insurance
Separating Risk Preferences from the Bernoulli Utility Function
Loading Fees and Premiums
PriceRelated Moral Hazard
Coinsurance and Moral Hazard
Calculating the Effect of Coinsurance on Efficient Moral Hazard
A PriceReduction Strategy
Optimal Health Insurance Design
Insuring the Uninsured
The Case for Tax Subsidies
Technology Growth as Moral Hazard
The Value of Health Care and National Health Insurance
Blank Check Argument
Consumers Income Payoff Test
Future Empirical Work
A Cautionary Word
The Theory of Demand for Health Insurance - John A. Nyman
The Theory of Demand for Health Insurance John A. Nyman. 2003 216 pp. ISBN-10: 0804744882 ISBN-13: 9780804744881 Cloth $45.00. Buy Cloth Edition ...
JSTOR: The Theory of Demand for Health Insurance
The Theory of Demand for Health Insurance. Richard A. Hirth. Journal of Economic Literature, Vol. 42, No. 1, 188-189. Mar., 2004. ...
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The Theory of Demand for Health Insurance, by John A. Nyman, 2003, Stanford Economics and Finance, Stanford, California: Stanford University Press.
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The Theory of Demand for Health Insurance. Author: John A. Nyman ISBN: 0-8047-4488-2 Publisher: Stanford University Press ...
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U of M: Health Policy and Management: People: Faculty.
Nyman, John A. The Theory of Demand for Health Insurance. Stanford, CA: Stanford University Press, 2003. Nyman, John A., Melissa S. Martinson, David Nelson, ...
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Is 'Moral Hazard' Inefficient? The Policy Implications Of A New ...
In The Theory of Demand for Health Insurance, I present a new theory, which explains the welfare implications of moral hazard that is sometimes represented ...
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American Health Policy: Cracks in the Foundation -- Nyman 32 (5 ...
The Theory of Demand for Health Insurance. Stanford, CA: Stanford University Press. Pauly, mv 1968. The Economics of Moral Hazard: Comment. ...
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Health insurance theory: the case of the missing welfare gain
Nyman, ja: The Theory of Demand for Health Insurance. Stanford University Press, Stanford (2003). 14. Nyman, ja, Maude-Griffin, R.: The welfare economics of ...
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The Theory of Demand for Health Insurance - Blackwell Online
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