A New Type of Hospital Insurance

A Proposal for an Experiment

by Joseph P. Newhouse, V. D. Taylor


Full Document

FormatFile SizeNotes
PDF file 1 MB

Use Adobe Acrobat Reader version 10 or higher for the best experience.


Purchase Print Copy

 FormatList Price Price
Add to Cart Paperback27 pages $20.00 $16.00 20% Web Discount

Proposes variable cost hospitalization insurance to give consumers more choice of cost and quality, give doctors and hospitals an incentive to cut waste, and stop insured users of lower-cost hospitals from subsidizing users of expensive ones. Under variable cost insurance (VCI), the insured's premium depends on the relative costliness of the hospital he selects. Higher quality or greater economy would be chosen according to tastes and income. Physicians would be encouraged to consider hospital cost. At least some doctors and patients would switch from high-cost, low-quality hospitals to others, giving hospitals a motivation for improving their management practices. VCI is completely compatible with major risk insurance, and straightforwardly applicable to comprehensive prepaid medical care. Costs for the latter might be calculated as the Clakamas County (Oregon) Physicians Association has done for 30 years. Cost index calculations are appended.

This report is part of the RAND Corporation Paper series. The paper was a product of the RAND Corporation from 1948 to 2003 that captured speeches, memorials, and derivative research, usually prepared on authors' own time and meant to be the scholarly or scientific contribution of individual authors to their professional fields. Papers were less formal than reports and did not require rigorous peer review.

Permission is given to duplicate this electronic document for personal use only, as long as it is unaltered and complete. Copies may not be duplicated for commercial purposes. Unauthorized posting of RAND PDFs to a non-RAND Web site is prohibited. RAND PDFs are protected under copyright law. For information on reprint and linking permissions, please visit the RAND Permissions page.

The RAND Corporation is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.