Optimal medical investment and insurance system: revenues, costs and benefits

This paper analyses the optimal choice of medical investment and design of health insurance system in an interactive medical context with the utility-maximising patient, the net-revenue-maximising physician and the insurer pursuing the patient’s benefits and a balance between revenues and costs. The feasibility of cost reduction or benefit improving is addressed. With positive payments to the physician, cost reduction or benefit improving is obtainable through a reduction in the social loss by restraining overinvestment in medical capital goods. A fully prospective payment system would be a cost- minimising payment system but not definitely a benefit-improving system.