Health Insurance, Habits and Health Outcomes: A Dynamic Stochastic Model of Investment in Health
AbstractI develop a dynamic stochastic model of individual choices about health insurance, exercise, smoking, alcohol consumption and medical treatment. The primary objective is to estimate the parameters of the model to conduct counter-factual health policy experiments. The model is estimated through maximum likelihood using data on 3671 males from the Health and Retirement Study. A kernel smoothed probability simulator is developed to solve an initial conditions problem. Preliminary estimates show that the model does well in matching the means, frequencies and transitions in this sample for all the choices and states except for the insurance choices in the first half of the life cycle (ages 22 to 54). It needs to be emphasized however that the fit of the insurance choices is improving with the improvement of the estimates. The estimates are then used for two radically different counter-factual health policy experiments. In the first experiment that simulates the provision of comprehensive health insurance coverage, every individual is mandated to be on a health insurance plan that charges a premium of $1000.0 per annum (that is comparable in cost to the options in the data) but covers all out of pocket costs. The simulations suggest that the average health outcomes do not change much over the life cycle in the new regime. However the proportion of individuals smoking and consuming alcohol falls slightly, especially for those older than 60 years, with the decrease being as much as 0.8% in both instances. The proportion of individuals seeking medical treatment increases by as much as 49%. Average consumption of a composite commodity also rises by upto 7% providing partial evidence that the individuals are better off under the new policy. In another experiment that simulates the withdrawal of provision of subsidized medical care, all individuals are denied health insurance. Simulations reveal that the average health outcomes do not change much from the status quo. However the proportion of individuals smoking and consuming alcohol increases by as much as 3.2% and 0.5% respectively. The proportion of individuals seeking medical care falls by as much as 95%. The two experiments taken together suggest that provision of subsidized medical treatment tends to increase demand for medical care but fosters healthier behaviors. On the contrary withdrawal of subsidized treatment chokes demand for medical services but leads to increases in unhealthy behaviors. Of particular interest is the fact that the model provides no evidence of the existence of a moral hazard problem associated with the provision of subsidised medical care on habits like smoking and alcohol consumption.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoPaper provided by Society for Computational Economics in its series Computing in Economics and Finance 2001 with number 166.
Date of creation: 01 Apr 2001
Date of revision:
Contact details of provider:
Web page: http://www.econometricsociety.org/conference/SCE2001/SCE2001.html
More information through EDIRC
Dynamic discrete choice; Health insurance; Habits; Health outcomes; Initial conditions;
Find related papers by JEL classification:
- C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
- C5 - Mathematical and Quantitative Methods - - Econometric Modeling
- C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Michael Keane & Olena Stavrunova, 2011.
"Adverse Selection, Moral Hazard and the Demand for Medigap Insurance,"
Working Paper Series
167, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
- Michael P. Keane & Olena Stavrunova, 2012. "Adverse Selection, Moral Hazard and the Demand for Medigap Insurance," Economics Papers 2012-W10, Economics Group, Nuffield College, University of Oxford.
- Michael Keane & Olena Stavrunova, 2011. "Adverse Selection, Moral Hazard and the Demand for Medigap Insurance," Working Papers 201119, ARC Centre of Excellence in Population Ageing Research (CEPAR), Australian School of Business, University of New South Wales.
- Michael Keane & Olena Stavrunova, 2012. "Adverse Selection, Moral Hazard and the Demand for Medigap Insurance," Economics Series Working Papers 2012-W10, University of Oxford, Department of Economics.
- 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.
- Hanming Fang & Michael Keane & Ahmed Khwaja & Martin Salm & Dan Silverman, 2007.
"Testing the Mechanisms of Structural Models: The Case of the Mickey Mantle Effect,"
American Economic Review,
American Economic Association, vol. 97(2), pages 53-59, May.
- Fang, H. & Keane, M. & Khwaja, A. & Salm, M. & Silverman, D., 2007. "Testing the mechanisms of structural models: The case of the Mickey Mantle effect," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3160131, Tilburg University.
- Hanming Fang & Michael Keane & Ahmed Khwaja, & Martin Salm & Dan Silverman, 2006. "Testing the Mechanisms of Structural Models: The Case of the Mickey Mantle Effect," MEA discussion paper series 06113, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum).
If references are entirely missing, you can add them using this form.