Health insurance: Medical treatment vs disability payment

Geir B. Asheim, Anne Wenche Emblem and Tore Nilssen

Published in:

Research in Economics

Abstract:

We present arguments for treating health insurance and disability insurance in an integrated manner in economic analysis, based on a model where each individual’s utility depends on both consumption and health and her income depends on her earning ability. When purchasing insurance, she may choose a contract that offers less than full medical treatment. We find that high-ability individuals demand full recovery and equalize utility across states, while low-ability individuals demand partial treatment and cash compensation and suffer a loss in utility if ill. Our results carry over to the case where health states are not observable.

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Published Nov. 4, 2010 2:09 PM - Last modified June 7, 2019 9:50 AM