The economics of health insurance plan design

In developing insurance products, health insurers have often failed to incorporate member-level economic decision making into the underlying plan design. Instead, health insurers have either completely isolated members from economic choices within a restricted network or simply shifted costs without providing members with an opportunity to more efficiently purchase health care services. In either approach, the plan designs do not provide members with a rational economic framework to make efficient health care purchases. In order to analyze the economic framework in traditional plan designs, this article first outlines the characteristics of an efficient economic transaction and then compares these characteristics with traditional insurance plans. The article concludes by suggesting new plan designs that achieve more economically efficient outcomes through the application of episode of care technology.