Asymmetric information, agency & supplier induced demand - Asymmetric information & Principal-agent issues in healthcare
9 important questions on Asymmetric information, agency & supplier induced demand - Asymmetric information & Principal-agent issues in healthcare
Who is the principal and who is the agent in moral hazard?
The agent is the patient and/or doctor
What are the problems with moral hazard? (3x)
- Patients may take less preventive action due to insurance (ex-ante moral hazard)
- Patients may use more, or more expensive, healthcare due to insurance (ex-post moral hazard)
- physisians may prescribe more, or more expensive, healthcare due to insurance (provider induced moral hazard)
All of these can result in overconsumption or underconsumption of care.
What are the problems with 'adverse selection'?
- Premiums increase à healthy people increasingly flee à unhealthy people remain à insurers’ average costs increase à premiums increase à …
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What is the 'adverse selection death spiral'?
This results in the elimination of the health insurance market.
Also known as the 'lemons principle' by Akerlof (1970).
Who is the principal and who is the agent with 'supplier induced demand' (SID)?
What is the problem with SID? (2x)
- Results in: overprovision of health care
Physicians may engage in some persuasive activity to shift the patient’s demand curve
- Goal = own financial benefit
In other words, demand in excess of what would be chosen if patient had available the same information and knowledge as the physician
How do physicians aim to maximize their utility?
What is holding physicians back from fully exploiting their potential of SID?
What are four empirical evidences about SID?
- The extent of SID depends on the type of care.
- The potential for SID is limited because of the marginal increase if supply increases
- The physicians target income plays a role in the amount of SID
- Financial incentives matter
- Fee-for-service: evidence for overprovision
- Capitation: evidence of underprovision
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