I compare in-kind reimbursement (which fixes treatment quantities)
and reimbursement insurance (which fixes treatment prices) as demandside,
cost-containment measures. In the model, illness has a negative impact
on labor productivity and public insurance is financed through labor
income taxation. Consumers are heterogeneous with respect to intensity
of preferences for treatment which is their private information. The social
planner may be constrained to adopt uniform (pooling) allocations
or may be free to choose discriminating (self selecting) allocations in the
reimbursement plan.
Analyzing pooling allocations I show that reimbursement insurance
dominates in-kind reimbursement from a social welfare point of view.
While considering self-selecting allocations I show that the two reimbursement
methods are equivalent
