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Selection on Moral Hazard in Health Insurance

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  • Liran Einav
  • Amy Finkelstein
  • Stephen P. Ryan
  • Paul Schrimpf
  • Mark R. Cullen

Abstract

We use employee-level panel data from a single firm to explore the possibility that individuals may select insurance coverage in part based on their anticipated behavioral ("moral hazard") response to insurance, a phenomenon we label "selection on moral hazard." Using a model of plan choice and medical utilization, we present evidence of heterogenous moral hazard as well as selection on it, and explore some of its implications. For example, we show that, at least in our context, abstracting from selection on moral hazard could lead to overestimates of the spending reduction associated with introducing a high-deductible health insurance option. (JEL D82, G22, I13, J32)

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 103 (2013)
Issue (Month): 1 (February)
Pages: 178-219

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Handle: RePEc:aea:aecrev:v:103:y:2013:i:1:p:178-219

Note: DOI: 10.1257/aer.103.1.178
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References

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  1. Chandra, Amitabh & Gruber, Jonathan & McKnight, Robin, 2009. "Patient Cost-Sharing and Hospitalization Offsets in the Elderly," Scholarly Articles 8058412, Harvard Kennedy School of Government.
  2. Pedro Carneiro & James Heckman & Edward Vytlacil, 2010. "Estimating marginal returns to education," CeMMAP working papers CWP29/10, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  3. Keeler, Emmett B. & Rolph, John E., 1988. "The demand for episodes of treatment in the health insurance experiment," Journal of Health Economics, Elsevier, vol. 7(4), pages 337-367, December.
  4. James J. Heckman & Sergio Urzua & Edward Vytlacil, 2006. "Understanding Instrumental Variables in Models with Essential Heterogeneity," The Review of Economics and Statistics, MIT Press, vol. 88(3), pages 389-432, August.
  5. Amanda E. Kowalski, 2009. "Censored Quantile Instrumental Variable Estimates of the Price Elasticity of Expenditure on Medical Care," NBER Working Papers 15085, National Bureau of Economic Research, Inc.
  6. Keane, Michael & Moffitt, Robert, 1998. "A Structural Model of Multiple Welfare Program Participation and Labor Supply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 553-89, August.
  7. Fang, Hanming & Keane, Michael & Silverman, Dan, 2006. "Sources of Advantageous Selection: Evidence from the Medigap Insurance Market," Working Papers 17, Yale University, Department of Economics.
  8. Einav, Liran & Finkelstein, Amy & Levin, Jonathan, 2009. "Beyond Testing: Empirical Models of Insurance Markets," Department of Economics, Working Paper Series qt90g407hf, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  9. A. Colin Cameron & Jonah B. Gelbach & Douglas L. Miller, 2006. "Robust Inference with Multi-way Clustering," NBER Technical Working Papers 0327, National Bureau of Economic Research, Inc.
  10. Alma Cohen & Liran Einav, 2007. "Estimating Risk Preferences from Deductible Choice," American Economic Review, American Economic Association, vol. 97(3), pages 745-788, June.
  11. M. Kate Bundorf & Jonathan Levin & Neale Mahoney, 2012. "Pricing and Welfare in Health Plan Choice," American Economic Review, American Economic Association, vol. 102(7), pages 3214-48, December.
  12. Manning, Willard G, et al, 1987. "Health Insurance and the Demand for Medical Care: Evidence from a Randomized Experiment," American Economic Review, American Economic Association, vol. 77(3), pages 251-77, June.
  13. Liran Einav & Amy Finkelstein & Iuliana Pascu & Mark R. Cullen, 2010. "How general are risk preferences? Choices under uncertainty in different domains," NBER Working Papers 15686, National Bureau of Economic Research, Inc.
  14. Eugenio J. Miravete, 2003. "Choosing the Wrong Calling Plan? Ignorance and Learning," American Economic Review, American Economic Association, vol. 93(1), pages 297-310, March.
  15. Patrick Bajari & Han Hong & Ahmed Khwaja, 2006. "Moral Hazard, Adverse Selection and Health Expenditures: A Semiparametric Analysis," NBER Working Papers 12445, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Dardanoni, Valentino & Li Donni, Paolo, 2012. "Incentive and selection effects of Medigap insurance on inpatient care," Journal of Health Economics, Elsevier, vol. 31(3), pages 457-470.
  2. Bryan, Gharad & Karlan, Dean & Zinman, Jonathan, 2012. "You Can Pick Your Friends, but You Need to Watch Them: Loan Screening and Enforcement in a Referrals Field Experiment," Working Papers 99, Yale University, Department of Economics.
  3. Moreno-Serra, R & Smith, PC, 2013. "Towards an index of health coverage," Working Papers 10422, Imperial College, London, Imperial College Business School.
  4. Georges Dionne & Casey G. Rothschild, 2014. "Economic Effects of Risk Classification Bans," Cahiers de recherche 1420, CIRPEE.
  5. Martin Gaynor & Kate Ho & Robert Town, 2014. "The Industrial Organization of Health Care Markets," NBER Working Papers 19800, National Bureau of Economic Research, Inc.
  6. Georges Dionne, 2012. "The Empirical Measure of Information Problems with Emphasis on Insurance Fraud and Dynamic Data," Cahiers de recherche 1233, CIRPEE.
  7. Randall P. Ellis & Denzil G. Fiebig & Meliyanni Johar & Glenn Jones & Elizabeth Savage, 2012. "Explaining Health Care Expenditure Variation: Large-sample Evidence Using Linked Survey and Health Administrative Data," Working Paper Series 1, Economics Discipline Group, UTS Business School, University of Technology, Sydney.
  8. Arun Chandrasekhar & Victor Chernozhukov & Francesca Molinari & Paul Schrimpf, 2012. "Inference for best linear approximations to set identified functions," CeMMAP working papers CWP43/12, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  9. Raj Chetty & Amy Finkelstein, 2012. "Social Insurance: Connecting Theory to Data," NBER Working Papers 18433, National Bureau of Economic Research, Inc.
  10. Klein, T.J. & Lambertz, C. & Stahl, K., 2013. "Adverse Selection and Moral Hazard in Anonymous Markets," Discussion Paper 2013-032, Tilburg University, Center for Economic Research.
  11. Klein, Tobias J. & Lambertz, Christian & Stahl, Konrad O., 2013. "Market Transparency, Adverse Selection, and Moral Hazard," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 426, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  12. Aviva Aron-Dine & Liran Einav & Amy Finkelstein & Mark Cullen, 2012. "Moral hazard in health insurance: How important is forward looking behavior?," Discussion Papers 11-007, Stanford Institute for Economic Policy Research.
  13. Powell-Jackson, Timothy & Hanson, Kara & Whitty, Christopher J.M. & Ansah, Evelyn K., 2014. "Who benefits from free healthcare? Evidence from a randomized experiment in Ghana," Journal of Development Economics, Elsevier, vol. 107(C), pages 305-319.
  14. Deryugina, Tatyana, 2012. "Does Selection in Insurance Markets Always Favor Buyers?," MPRA Paper 53583, University Library of Munich, Germany.
  15. Benjamin R. Handel, 2011. "Adverse Selection and Switching Costs in Health Insurance Markets: When Nudging Hurts," NBER Working Papers 17459, National Bureau of Economic Research, Inc.
  16. Aviva Aron-Dine & Liran Einav & Amy Finkelstein & Mark R. Cullen, 2012. "Moral Hazard in Health Insurance: How Important Is Forward Looking Behavior?," NBER Working Papers 17802, National Bureau of Economic Research, Inc.
  17. Bernal, Noelia & Carpio, Miguel A. & Klein, Tobias J., 2014. "The Effects of Access to Health Insurance for Informally Employed Individuals in Peru," IZA Discussion Papers 8213, Institute for the Study of Labor (IZA).

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