Abstract

I compare in-kind reimbursement and reimbursement insurance. I explicitly consider outpatient and inpatient care in a model where illness has a negative impact on labor productivity. Consumers are heterogeneous with respect to intensity of preferences for treatment which is their private information. Then the social planner has a choice of two kinds of reimbursement structure: pooling (uniform) and self-selecting allocations. Analyzing pooling allocations I show that reimbursement insurance weakly dominates in-kind reimbursement. While considering self-selecting allocations I show that the two reimbursement methods are, from a social welfare point of view, equivalent.