Coinsurance vs. copayments : reimbursement rules for a monopolistic medical product with competitive health insurers

This paper studies a market for a medical product in which there is perfect competition among health insurers, while the good is sold by a monopolist. Individuals di¤er in their severity of illness and there is ex post moral hazard. We consider two regimes : one in which insurers use coinsurance rates (ad valorem reimbursements) and one in which insurers use copayments (specic reimbursements). We show that the induced equilibrium with copayments involves a lower producer price and a higher level of wel- fare for consumers. This results provides strong support for a reference price based reimbursement policy