Combining Demand and Supply Side Cost Sharing: The Case of Inpatient Mental Health Care

Public and private payers can set the terms of demand-side cost sharing in insurance for patients and supply-side cost sharing in the form of reimbursement for providers. This paper summarizes a model in which health care utilization is affected by both demand- and supply-side cost sharing. The combined effects of these two policies are simulated in an application to inpatient mental health care. Because supply-side cost sharing (as would take place in a prospective payment system) limits cost without imposing financial risk on patients, it is preferred as a policy for restraining cost. I show in the case studied that when supply-side cost sharing is introduced, insurance coverage should improve. (Summer 1989)