Common Contracts
1 similar null contracts
Health Insurance as a Two-Part Pricing Contract*September 21st, 2007
Monopolies appear throughout health care markets, as a result of patents, limits to the extent of the market, or the presence of unique inputs and skills. In the health care industry, however, the deadweight costs of monopoly may be considerably smaller than in other markets, or even absent altogether. Health insurance, frequently implemented as an ex ante premium coupled with an ex post co-payment per unit consumed, effectively operates as a two-part pricing contract. This allows monopolists to earn profits without inefficiently constraining quantity. This view of health insurance contracts has several implications: (1) Low ex post copayments to insured consumers substantially reduce deadweight losses from medical care monopolies β we calculate, for instance, that the provision of drug insurance lowers monopoly loss in the US pharmaceutical market by more than 90 percent; (2) Price regulation or antitrust enforcement of monopolies may be less beneficial in health care markets, particu
