IDEAS home Printed from
   My bibliography  Save this paper

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


  • Jean Marie Abraham
  • Thomas DeLeire
  • Anne Beeson Royalty


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
    Note: HE

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    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. 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.
    3. 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.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    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.

    More about this item

    JEL classification:

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

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:15410. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.