Health Insurance Protections and Ex Ante Moral Hazard in Risky Health Behaviors

With the goal of lowering incentives for alcohol and substance abuse, U.S. states have historically permitted private health insurers to deny reimbursement of medical claims stemming from alcohol or opioid impairment. However, a potential unintended consequence of such “exclusion provisions” is that they may reduce providers’ incentives to screen patients for alcohol intoxication and substance abuse, leading to an increase in risky health behaviors that carry substantial externality costs. In response to these concerns, 16 states and the District of Columbia repealed their exclusion provisions and replaced them with explicit prohibitions on the denial of health insurance claims resulting from alcohol and other substance use impairment (PDHIAs). This study is the first to comprehensively explore the effects of PDHIAs on alcohol- and drug- related outcomes, with a particular focus on externalities associated with these risky health behaviors, allowing us to broadly assess their potential welfare effects. Leveraging a variety of national data sources (Uniform Crime Reports, Fatality Analysis Reporting System, Behavioral Risk Factor Surveillance System, Treatment Episode Data Set, and Medical Expenditure Panel Survey) in conjunction with a generalized difference-in-differences approach, we find little support for the hypothesis that PDHIAs generated ex ante moral hazard. To the contrary, there is some evidence that PDHIAs may have reduced some criminal arrests, drunk driving behaviors, and alcohol use. One explanation for these findings is that physicians may be more willing to refer treatment services for substance use-related health issues when patients and hospitals are not financially penalized by PDHIAs. Lastly, there is little evidence that PDHIAs had broader impacts on private insurance markets, either in affecting private health insurance coverage or average premiums.