Health Insurance

Tradeoffs Revisited

Published in: Journal of Health Economics, v. 20, no. 2, Mar. 2001, p. 289-293

Posted on RAND.org on January 01, 2001

by Willard G. Manning, M. Susan Marquis

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In two recent papers, (Journal of Health Economics 18(2), 141-152, Journal of Health Economics 18(6), 811-824) Nyman raised some questions about the welfare calculations and conclusions in an earlier paper (Manning and Marquis, Health insurance: the tradeoff between risk pooling and moral hazard, Vol. 15, 1996). This note discusses the erroneous criticisms in his papers. First, although, the authors estimated a Marshallian demand curve, their calculations are based on compensating variations that incorporate the gains from risk pooling. Second, their estimates of second best insurance plans indicate that some cost sharing is optimal, in contradiction to Nyman's his assertion that the authors' our results raise questions about the desirability of insurance coverage. The comment also deals with other issues raised by Nyman.

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