Why it may hurt to be insured: the effects of capping coinsurance payments
This can be motivated from an insurance perspective: without a cap, coinsurance payments might be unacceptably high for people with high medical costs.
This paper shows that introducing a cap on coinsurance payments may actually hurt people with high medical costs. This is not due to moral hazard that comes along with the extra insurance. Instead, it is because the introduction of a cap makes health spending below the cap more price elastic, thereby inducing the health insurer to raise the coinsurance rate.
Keywords: Moral Hazard, Deductibles, Co-Payment Schemes in Health Care, Idiosyncratic Health Shocks