Decomposition of moral hazard.

This study seeks to simulate the portion of moral hazard that is due to the income transfer contained in the coinsurance price reduction. Healthcare spending of uninsured individuals from the MEPS with a priority health condition is compared with the predicted counterfactual spending of those same individuals if they were insured with either (1) a conventional policy that paid off with a coinsurance rate or (2) a contingent claims policy that paid off by a lump sum payment upon becoming ill. The lump sum payment is set to be equal to the insurer's predicted spending under the coinsurance policy. The proportion of moral hazard that is efficient is calculated as the proportion of total moral hazard that is generated by this lump sum payment. We find that the efficient proportion of moral hazard varies from disease to disease, but is the highest for those with diabetes and cancer.

The productivity of health care and health production functions.

This paper derives a necessary and sufficient condition under which increased health care productivity must lead to decreased (increased) demand for health care as long as the demand for health care is inelastic (elastic). It is shown that this condition identifies a class of health production functions, which may provide useful guidance to empirical studies that depend wholly or partly on the correct specification of a health production function. As an illustration, it is demonstrated that this class of production functions may be useful for empirical studies that test the hypothesis that schooling, increasing the efficiency of health production, leads to a larger health output from a given set of health inputs. The paper also offers broader classes of production functions that would enable one to test this relationship between the demand elasticity and the effect of health care productivity on health care demand.