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Cost‐effectiveness Analysis and Insurance Coverage: Solving a Puzzle
Author(s) -
Pauly Mark
Publication year - 2015
Publication title -
health economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.55
H-Index - 109
eISSN - 1099-1050
pISSN - 1057-9230
DOI - 10.1002/hec.3044
Subject(s) - social planner , cost sharing , unit (ring theory) , cost effectiveness , social cost , actuarial science , marginal cost , cost effectiveness analysis , cost efficiency , computer science , unit cost , health insurance , health care , planner , cost–benefit analysis , key (lock) , social insurance , business , risk analysis (engineering) , economics , microeconomics , medicine , psychology , computer security , economic growth , operating system , ecology , mathematics education , nursing , programming language , biology , market economy
Abstract The conventional model for the use of cost‐effectiveness analysis for health programs involves determining whether the cost per unit of effectiveness of the program is lower than some socially determined maximum acceptable cost per unit of effectiveness. If a program is better by this criterion, the policy implication is that it should be implemented by full coverage of its cost by insurance; if not, the program should not be implemented. This paper examines the unanswered question of how cost‐effectiveness analysis should be performed and interpreted when insurance coverage may involve cost sharing. It explores the question of how cost sharing should be related to the magnitude of a cost‐effectiveness ratio. A common view that cost sharing should vary inversely with program cost‐effectiveness is shown to be incorrect. A key issue in correct analysis is whether there is heterogeneity in marginal effectiveness of care that cannot be perceived by the social planner but is known by the demander. It is possible that some programs that would fail the social efficiency test at full coverage will be acceptable with positive cost sharing. Combining individual and social preferences affects both the choice of programs and the extent of cost sharing. Copyright © 2014 John Wiley & Sons, Ltd.