Optimal Health Insurance:Comparison Between Static And Dynamic Model

Most of the theoretical and empirical work on efficient health insurance has been based on steady health shock, which would lead to no difference between periods. However, in the article, based on the optimal insurance model of Cutler and Zeckhauser in 2000, we find out the optimal insurance reimbursement ratio, which will guarantee that the society’s weighted average utility is the biggest. Besides, all the exogenous variables are set up beforehand. Then, we would like to extend it to dynamic, which means health shock will tend to change from period Ⅰ to period Ⅱ. And in this two-period model, dynamic optimal method is used to solve the problem. We would like to find out how the whole society’s weighted average utility would like to change with the insurance reimbursement rate, and the difference between dynamic and steady health shock. In the end, we know that the optimal insurance reimbursement ratio is 0.2 in dynamic model, which is easy to understand because the health service consumption will improve the health status in the second period, and certainly lower insurance reimbursement rate will induce lager weighted average utility.