Dynamic Incentives and Optimal Payment Systems for Health Insurance
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| Title | Dynamic Incentives and Optimal Payment Systems for Health Insurance
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| Author | Du Chuang |
| Organization | Institute of Economics, Chinese Academy of Social Sciences |
| Email | duchuang@cass.org.cn; |
| Key Words | Health Insurance, Moral Hazard, PPS, Repeated Games |
| Abstract | In the period of China’s thirteenth “Five Years Plan”, it will be important to establish a fairer and more sustainable social security system, that medical expenses are controlled by reforming payment systems of social health insurances. In this paper, we study social health insurances’ optimal payment systems to hospitals and its determinants. A game-theoretical model with information asymmetry is constructed to discuss the repeated games of hospitals, patients and social health insurance institutions. Main conclusions are as follows. There is a trade-off between medical expense control and treatment outcome. (1) To encourage hospitals to be honest in prescription and treatment, the optimal price in a Prospective Payment System (PPS) should be strictly higher than the average cost of hospital treatments. We give the explicit solution of the optimal price in general settings with the social insurance institution’s objective function, the consumers’ utility functions and income distribution functions. (2) Which payment system is optimal depends on the external environment. PPS will be better than Retrospective Payment System (RPS) if patient’s copayment/coinsurance is low enough; while RPS will be better than PPS if the variety of treatment costs with the severity of diseases is large enough, or hospitals are not patient enough. Policy implications: PPS or RPS is not absolutely better or worse, depending on applicable conditions, but PPS should be adopted with the increasing level of health insurance. We also put forward some policy recommendations on the implementation of PPS. |
| Serial Number | WP1087 |
| Time | 2016-08-02 |
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