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Moral Hazard Matters: Measuring Relative Rates of Underinsurance Using Threshold Measures

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  • Jean Marie Abraham
  • Thomas DeLeire
  • Anne Beeson Royalty

Abstract

This paper illustrates the impact of moral hazard for estimating relative rates of underinsurance and to present an adjustment method to correct for this source of bias. Individuals or households are often classified as underinsured if out-of-pocket spending on medical care relative to income exceeds some threshold. We show that, without adjustment, this common threshold measure of underinsurance will underestimate the number with low levels of insurance coverage due to moral hazard. We propose an adjustment method and apply it to the specific case of estimating the difference in rates of underinsurance among small- versus large-firm workers with full-year, employer-sponsored insurance. Using data from the 2005 Medical Expenditure Panel Survey, we find that after applying the adjustment, the underinsurance rate of small-firm households increases by approximately 20% with the adjustment for moral hazard and the difference in underinsurance rates between large firm and small firm households widens substantially. Adjusting for moral hazard makes a sizeable difference in the estimated prevalence of underinsurance using a threshold measure.

Suggested Citation

  • Jean Marie Abraham & Thomas DeLeire & Anne Beeson Royalty, 2009. "Moral Hazard Matters: Measuring Relative Rates of Underinsurance Using Threshold Measures," NBER Working Papers 15410, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:15410
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    References listed on IDEAS

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    1. Cutler, David M. & Zeckhauser, Richard J., 2000. "The anatomy of health insurance," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 11, pages 563-643, Elsevier.
    2. José Mata & José A. F. Machado, 2005. "Counterfactual decomposition of changes in wage distributions using quantile regression," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(4), pages 445-465.
    3. Joseph P. Newhouse & Charles E. Phelps, 1976. "New Estimates of Price and Income Elasticities of Medical Care Services," NBER Chapters, in: The Role of Health Insurance in the Health Services Sector, pages 261-320, National Bureau of Economic Research, Inc.
    4. Jayanta Bhattacharya & William B. Vogt & Aki Yoshikawa & Toshitaka Nakahara, 1996. "The Utilization of Outpatient Medical Services in Japan," Journal of Human Resources, University of Wisconsin Press, vol. 31(2), pages 450-476.
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    Cited by:

    1. Jean M. Abraham & Anne Beeson Royalty & Thomas DeLeire, 2011. "Gauging the Generosity of Employer-Sponsored Insurance: Differences Between Households With and Without a Chronic Condition," NBER Working Papers 17232, National Bureau of Economic Research, Inc.
    2. Katherine Baird, 2016. "The Financial Burden of Out-of-Pocket Expenses in the US and Canada: How Different is the US?," LIS Working papers 671, LIS Cross-National Data Center in Luxembourg.

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    JEL classification:

    • I10 - Health, Education, and Welfare - - Health - - - General

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