Scandinavian Working Papers in Economics

HERO On line Working Paper Series,
Oslo University, Health Economics Research Programme

No 2001:1: Health Insurance: Treatment vs. Compensation

Geir Asheim (), Tore Nilssen () and Anne Wenche Emblem ()
Additional contact information
Geir Asheim: Department of Economics, Postal: University of Oslo, P.O. Box 1095 Blindern, NO-0317 Oslo, Norway
Tore Nilssen: Department of Economics, Postal: University of Oslo, P.O. Box 1095 Blindern, NO-0317 Oslo, Norway
Anne Wenche Emblem: Agder University, Postal: Norway

Abstract: In this paper, we view health insurance as a combined hedge against the two consequences of falling ill: treatment expenditures and loss in income. We discuss how an individual’s ability when healthy affects her decision on whether to buy health insurance with treatment to full recovery if ill or with partial treatment combined with cash compensation for the resulting loss in income. We find that a highability individual demands full recovery and is fully insured, while a low-ability individual demands partial treatment and cash compensation and is only partly insured.

Keywords: Health Insurance; Treatment; Compensation

JEL-codes: D81; G22; I11

17 pages, June 30, 2009

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