BENIGN MORAL HAZARD AND THE COST-EFFECTIVENESS ANALYSIS OF INSURANCE-COVERAGE

When a medical intervention is found to be cost effective, what level of insurance coverage should apply to it? The optimal level of coverage may be less than or greater than full coverage of medical care costs; a finding of cost effectiveness for a service does not necessarily imply v full coverage or coverage at the same rate as other services. If there is some imperfection in the ability to translate higher insurance benefits into higher insurer revenues, the optimal level of coverage will be greater the higher the degree of moral hazard applying to the service. © 1991.