A welfare measure of "offset effects" in health insurance

Jacob Glazer, Thomas G. McGuire*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


Changing health insurance coverage for one service may affect use of other insured services. When improving coverage for one service reduces use of another, the savings are referred to as "offset effects." For example, costs of better coverage for prescription drugs may be partly "offset" by reductions in hospital costs. Offset effects have welfare implications but it has not been clear how to value these impacts in design of health insurance. We show that plan-paid - rather than total - spending is the right welfare measure of the offset effect, and go on to develop a "sufficient statistic" for evaluating the welfare effects of change in coverage in the presence of multiple goods. We derive a simple rule for when a coverage improvement increases welfare due to offset effects.

Original languageEnglish
Pages (from-to)520-523
Number of pages4
JournalJournal of Public Economics
Issue number5-6
StatePublished - Jun 2012


  • Health insurance design
  • Offset effects


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