Bodil O. Hansen and Hans keiding
Bodil O. Hansen: Department of Economics, Copenhagen Business School, Postal: Department of Economics, Copenhagen Business School, Solbjerg Plads 3 C, 5. sal, DK-2000 Frederiksberg, Denmark
Hans keiding: University of Copenhagen, Postal: University of Copenhagen, Institute of Public Health Research,, Blegdamsvej 5,, DK-2200 Copenhagen K.
Abstract: In this paper, the reimbursement of spending on medicin is considered as
a problem of insurance, where the loss due to illness of the insured is covered
totally or partially by an insurance company (which may be the government).
The presence of moral hazard (in the form of the individual patient’s own
effort to reduce cost by avoiding unnecessary medicination and choosing the
cheapest drugs) implies that an optimal insurance will have less than total
coverage of the patient outlays.
The insurance approach to drug subsidization indicates that reimburse-ment
should vary with the type of medicin rather than with accumulated pa-tient
outlays. Also, secondary investment covering the remaining part of the
patient’s outlays, a feature of the reimbursement system in some countries, is
13 pages, November 1, 1999
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