Would you like suspenders to go with that belt? An analysis of optimal combinations of cost sharing and managed care

When and why would it be efficient for a managed care insurance plan using managerial limits to add patient cost sharing? This paper uses a diagrammat ic model to indicate that the use of patient point-of-service cost sharing can cause the managerial limits or guidelines to be less restrictive in lim iting high value care or cases of severe illness. The model shows that cost -sharing is more likely to improve efficiency the greater the variation in illness severity and the smaller the degree of moral hazard. The model is e xtended to the case in which provider cost sharing is also used. (C) 1999 E lsevier Science B.V. All rights reserved.