Agency and trilateral trade in health care

I analyze the optimal provision of health insurance in models with asymmetric information and trilateral trade. Although patients are the consumers of health care, they do not determine the amount of health care to purchase or pay for the good themselves. In the first chapter, I review the relevance of my work with respect to the current health policy discussions.;In the second chapter, I model the doctor, patient, and insurance company interaction as an asymmetric information problem between the doctor and patient. The patient is the principal and the doctor, the agent. The doctor is assumed to accurately diagnose the patient's state of illness; she derives utility from her income and her patient's health. Fee for service (FFS) insurance companies and health maintenance organizations (HMO) provide different financial incentives to the doctor. With FFS insurance, the doctor receives a state contingent payment; she receives an informational rent which is decreasing in the patient's state of illness. The treatment amount is distorted; the distortion is increasing in the patient's state of illness by a constant. Even when the doctor has an informational advantage, the HMO can design the doctor's incentives such that the patient achieves his full information allocation.;In the following chapter, I examine HMOs more closely. HMOs, by integrating insurance and health care provision, help resolve the agency problem between the doctor and the insurance company. Doctors are provided with incentives to control costs. The doctor is also an agent for the patient. Patients may want more health care than insurance companies want to provide. Unless the HMO designs the doctor's compensation properly, doctors may have an incentive to collude with the patient against the HMO. I analyze optimal reimbursement schemes for doctors and optimal insurance for patients when the doctor acts as a common agent for both the patient and the insurance company. In a collusion proof contract, HMOs design the doctor's compensation to reduce the stakes of collusion or reduce the patient's incentive to collude.;These findings are consistent with real world contracts. With HMOs, treatments are lumpy when patients are relatively ill, and patients receives more health care than optimal when relatively healthy. Copayments and utilization review are instruments managed care organizations use to preclude collusion. A copayment reduces the patient's incentive to collude. With utilization review, a form of costly state verification, any collusion is discovered by the insurance company. I find that when the HMO designs insurance to preclude collusion, the patient cannot achieve his second best allocation.