Reimbursing Preventive Care

The paper focuses on secondary prevention, such as diagnostic screening, medical examinations and checksup, which refers to the early detection of disease. Secondary prevention is analyzed as a self-insurance activity reducing the negative shock of illness and can be either complement or substitute to illness treatment. This paper analyses the optimal reimbursement scheme for both prevention and treatment when each activity receives either a linear subsidy (i.e. cost sharing) or tax. Although optimal reimbursement systematically encourages treatment, it positively affects prevention if and only if prevention reduces the cost of treatment, that is in the case the two activities are substitutes.