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Health Insurance and Ex Ante Moral Hazard: Evidence from Medicare

  • Dhaval Dave
  • Robert Kaestner

Basic economic theory suggests that health insurance coverage may cause a reduction in prevention activities, but empirical studies have yet to provide much evidence to support this prediction. However, in other insurance contexts that involve adverse health events, evidence of ex ante moral hazard is more consistent. In this paper, we extend the analysis of the effect of health insurance on health behaviors by allowing for the possibility that health insurance has a direct (ex ante moral hazard) and indirect effect on health behaviors. The indirect effect works through changes in health promotion information and the probability of illness that may be a byproduct of insurance-induced greater contact with medical professionals. We identify these two effects and in doing so identify the pure ex ante moral hazard effect. This study exploits the plausibly exogenous variation in health insurance as a result of obtaining Medicare coverage at age 65. We find evidence that obtaining health insurance reduces prevention and increases unhealthy behaviors among elderly men. We also find evidence that physician counseling is successful in changing health behaviors.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12764.

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Date of creation: Dec 2006
Date of revision:
Publication status: published as International Journal of Health Care Finance and Economics, Volume: 9 Issue: 4, Pages: 367-390 (December 2009)
Handle: RePEc:nbr:nberwo:12764
Note: HE AG HC
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
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  9. Zweifel, Peter & Manning, Willard G., 2000. "Moral hazard and consumer incentives in health care," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 8, pages 409-459 Elsevier.
  10. Kaestner, R. & Joyce, T. & Racine, A., 2001. "Medicaid eligibility and the incidence of ambulatory care sensitive hospitalizations for children," Social Science & Medicine, Elsevier, vol. 52(2), pages 305-313, January.
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