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Insurance‐Induced Moral Hazard: A Dynamic Model Of Within‐Year Medical Care Decision Making Under Uncertainty

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  • Christopher J. Cronin

Abstract

This study quantifies the moral hazard effect of health insurance on medical expenditure by estimating a dynamic model of within‐year medical care consumption that allows for insurance selection, endogenous health transitions, and individual uncertainty about medical care prices in an environment where insurance has nonlinear cost‐sharing features. The results suggest that moral hazard accounts for 53.1%, on average, of total annual medical expenditure when insured. This estimate is significantly different, and generally larger, than that produced by an alternative model that is representative of the annual medical care decision‐making models commonly found in the literature.

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  • Christopher J. Cronin, 2019. "Insurance‐Induced Moral Hazard: A Dynamic Model Of Within‐Year Medical Care Decision Making Under Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 60(1), pages 187-218, February.
    • Handle: RePEc:wly:iecrev:v:60:y:2019:i:1:p:187-218
    DOI: 10.1111/iere.12349
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    Cited by:

    1. Katarzyna Krot & Iga Rudawska, 2021. "How Public Trust in Health Care Can Shape Patient Overconsumption in Health Systems? The Missing Links," IJERPH, MDPI, vol. 18(8), pages 1-15, April.
    2. Cronin, C.J.; Forsstrom, M.P.; Papageorge, N.W.;, 2017. "Mental Health, Human Capital and Labor Market Outcomes," Health, Econometrics and Data Group (HEDG) Working Papers 17/25, HEDG, c/o Department of Economics, University of York.
    3. Donna B. Gilleskie, 2021. "In sickness and in health, until death do us part: A case for theory," Southern Economic Journal, John Wiley & Sons, vol. 87(3), pages 753-768, January.
    4. Vincenzo Atella & Alberto Holly & Alessandro Mistretta, 2016. "Disentangling Adverse Selection, Moral Hazard and Supply Induced Demand: An Empirical Analysis of The Demand For Healthcare Services," CEIS Research Paper 389, Tor Vergata University, CEIS, revised 31 Oct 2018.
    5. Barton Hamilton & Andrés Hincapié & Emma C. Kalish & Nicholas W. Papageorge, 2021. "Medical Innovation and Health Disparities," NBER Working Papers 28864, National Bureau of Economic Research, Inc.
    6. Powell, David & Goldman, Dana, 2021. "Disentangling moral hazard and adverse selection in private health insurance," Journal of Econometrics, Elsevier, vol. 222(1), pages 141-160.
    7. Haizhen Lin & Daniel W. Sacks, 2016. "Intertemporal Substitution in Health Care Demand: Evidence from the RAND Health Insurance Experiment," NBER Working Papers 22802, National Bureau of Economic Research, Inc.
    8. Mette Ejrnæs & Stefan Hochguertel, 2022. "Identifying Risk-based Selection in Social Insurance: New Approaches and Findings," Tinbergen Institute Discussion Papers 22-040/V, Tinbergen Institute.

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