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The key to reducing moral hazard in France: Hyperbolic Discounting?!?!

Written By: Jason Shafrin - Nov• 16•09

T.R. Reid’s book The Healing of America looks at the best parts of health care systems around the world.  In France, one of the most interesting aspects of their health care system is the pricing mechanism.  Prices are regulated by the government and almost every doctor charges the same price for a given service.  While free marketers may abhor the centralized price setting, this system does have one advantage over the U.S. system: patients and doctors actually know the price of the medical services rendered.  This increases the transparency of how medical resources are allocated.  

However, the most interesting part of the French system is how they use copayments.  Patients must make a copay almost any time they receive medical services (the poorest citizens are exempt from this however).  The copayments work as follows:

My visit, a ‘consultation for joint pain or stiffness,’ was priced at €26, or $33.80.  Patients were expected to pay this fee at the time of the visit, and the insurance would reimburse the patient about 70 percent of the fee, or $25.  In other words, a visit to an orthopedic specialist would cost about $10 out of pocket.”  

The question is, why doesn’t the French system just charge a $10 copayment instead of going through the hassle of a $34 copay and then having to reimburse the patient.  When ask about the reimbursement scheme, one French doctor said: 

Does it seem impractical?…No, I think it is entirely reasonable.  Medical care is a valuable commodity.  Its value can be life or death.  When we ask the patient to pay that €21 in my office, we remind her that she is receiving a costly service. Even though she’s going to get the money back from insurance in a week, maybe two, it is important to convey that something of value is exchanged when they come to see us.  And maybe, if someone calls me to their home just out of loneliness, just to have a chat, maybe that person will spare me the trip because he doesn’t want to pay the €31.

In essence, the doctor is saying that the copayment reduces moral hazard.  However, why the reimbursement?  Hyperbolic discounting may explain the payment structure.  Many individuals will be indifferent between $100 one year from now and $110 two years from now.  However, a person with hyperbolic preferences will prefer $100 today to $110 one year from now.  Or they may even prefer $100 today to $110 one week from now.  

Hyperbolic discounting implies that the discount rate in the immediate future is much higher than it would be over a similar time span in the more distant future.  Thus, someone who has hyperbolic preferences may be willing to pay €20 for physician house call, but would not be willing to pay €31 for the visit, even if €21 would be reimbursed one week later.  While the reimbursement system adds some administrative expenses to the French health care system, it does reduce moral hazard.

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6 Comments

  1. Hyperbolische Wertschätzung…

    Healthcare Economist · The key to reducing moral hazard in France: Hyperbolic Discounting?!?!
    In France, one of the most interesting aspects of their health care system is the pricing mechanism. Prices are regulated by the government and almost every…

  2. [...] How does France’s system of copayments reduce moral hazard? The Healthcare Economist explains that its effectiveness may rely on the French being ‘hyperbolic’. [...]

  3. [...] Healthcare Economist’s Jason Shafrin has written an interesting article about how the French healthcare system utilizes hyperbolic discounting in order to avoid moral hazard.  Basically, their system requires the patient to pay up front for [...]

  4. [...] isn’t the only country where insurance companies provide delayed reimbursement. In fact, in France patients pay the full cost of physician visits up front and only later are reimbursed 70 percent of the [...]

  5. [...] isn’t the only country where insurance companies provide delayed reimbursement. In fact, in France patients pay the full cost of physician visits up front and only later are reimbursed 70 percent of the [...]

  6. [...] Insurance schemes offer two types of reimbursement to beneficiaries for health care services: immediate reimbursement and delayed reimbursement.  In the former, the patient only pays the copayment or deductible, the insurer reimburses the providers directly for their services.  In the latter case, the patient pays for the full cost of care and is only later reimbursed.  I have written that delayed reimbursement—as long as the delay is not long and the program is efficiently administered—can decrease healthcare utilization without imposing significant financial constraints on patients.  The French system is often given as a model. [...]

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