Health insurance: tradeoffs revisited

In two recent papers, [Journal of Health Economics 18(2), 141-152, Journal of Health Economics 18(6), 811-824] Nyman raised some questions about the w elfare calculations and conclusions in our earlier paper [Manning and Marqu is, Health insurance: the tradeoff between risk pooling and moral hazard, V ol. 15, 1996]. This note discusses the erroneous criticisms in his papers. First, although, we estimated a Marshallian demand curve, our calculations are based on compensating variations that incorporate the gains from risk p ooling. Second, our estimates of second best insurance plans indicate that some cost sharing is optimal, in contradiction to his assertion that our re sults raise questions about the desirability of insurance coverage. The com ment also deals with other issues raised by Nyman. (C) 2001 Elsevier Scienc e B.V. All rights reserved.