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Insurance and the Utilization of Medical Services

  • Jonathan Meer
  • Harvey S. Rosen

Most data sets indicate a positive correlation between having health insurance and utilizing health care services. Yet the direction of causality is not at all clear. If we ob-serve a positive correlation between the utilization of health care services and insurance status, we do not know if this is because people who anticipate poor health buy more in-surance (or take jobs with generous medical coverage), or because insurance lowers the cost of health care, increasing the quantity demanded. While a few attempts have been made to implement an instrumental variables (IV) strategy to deal with endogeneity, the instruments chosen have not been entirely convinc-ing. In this paper we revisit the IV estimation of the reduced form relationships between insurance and health care utilization taking advantage of what we argue is a good instru-ment - the individual's self-employment status. Our main finding is that a positive and statistically significant effect of insurance continues to obtain even after instrumenting. Indeed, instrumental variables estimates of the impact of insurance on utilization of a variety of health care services are larger than their non-instrumented counterparts. The validity of this exercise depends on the extent to which self-employment status is a suitable instrument. To argue this case, we analyze panel data on transitions from wage-earning into self-employment and show that individuals who select into self-employment do not differ systematically from those who remain wage-earners with re-spect to either the utilization of health care or health status. While this finding does not prove that self-employment status is an appropriate instrument, it is encouraging that there appear to be no underlying differences that might lead to self-employment per se affecting health services utilization.

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File URL: http://www.nber.org/papers/w9812.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9812.

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Date of creation: Jul 2003
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Publication status: published as Meer, Jonathan and Harvey S. Rosen. "Insurance and the Utilization of Medical Services." Social Science & Medicine 58, 9 (May 2004): 1623-1632.
Handle: RePEc:nbr:nberwo:9812
Note: HE PE
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  1. James P. Smith, 1999. "Healthy Bodies and Thick Wallets: The Dual Relation between Health and Economic Status," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 145-166, Spring.
  2. Melissa A. Thomasson, 2000. "The Importance of Group Coverage: How Tax Policy Shaped U.S. Health Insurance," NBER Working Papers 7543, National Bureau of Economic Research, Inc.
  3. Craig William Perry & Harvey Rosen, 2001. "Insurance and the Utilization of Medical Services Among the Self-Employed," CESifo Working Paper Series 580, CESifo Group Munich.
  4. Jonathan Gruber, 2003. "Medicaid," NBER Chapters, in: Means-Tested Transfer Programs in the United States, pages 15-78 National Bureau of Economic Research, Inc.
  5. John Bound & David A. Jaeger & Regina Baker, 1993. "The Cure Can Be Worse than the Disease: A Cautionary Tale Regarding Instrumental Variables," NBER Technical Working Papers 0137, National Bureau of Economic Research, Inc.
  6. Jonathan Gruber & Brigitte C. Madrian, 2002. "Health Insurance, Labor Supply, and Job Mobility: A Critical Review of the Literature," NBER Working Papers 8817, National Bureau of Economic Research, Inc.
  7. Smith, James P, 1998. "Socioeconomic Status and Health," American Economic Review, American Economic Association, vol. 88(2), pages 192-96, May.
  8. Meer, Jonathan & Rosen, Harvey S., 2004. "Insurance and the utilization of medical services," Social Science & Medicine, Elsevier, vol. 58(9), pages 1623-1632, May.
  9. Jonathan Skinner & Elliott Fisher & John E. Wennberg, 2001. "The Efficiency of Medicare," NBER Working Papers 8395, National Bureau of Economic Research, Inc.
    • Jonathan S. Skinner & Elliott S. Fisher & John Wennberg, 2005. "The Efficiency of Medicare," NBER Chapters, in: Analyses in the Economics of Aging, pages 129-160 National Bureau of Economic Research, Inc.
  10. Craig William Perry & Harvey S. Rosen, 2001. "The Self-Employed are Less Likely to Have Health Insurance Than Wage Earners. So What?," NBER Working Papers 8316, National Bureau of Economic Research, Inc.
  11. Douglas Holtz-Eakin & John R. Penrod & Harvey S. Rosen, 1994. "Health Insurance and the Supply of Entrepreneurs," NBER Working Papers 4880, National Bureau of Economic Research, Inc.
  12. John Cawley, 2000. "Body Weight and Women's Labor Market Outcomes," NBER Working Papers 7841, National Bureau of Economic Research, Inc.
  13. Rivers, Douglas & Vuong, Quang H., 1988. "Limited information estimators and exogeneity tests for simultaneous probit models," Journal of Econometrics, Elsevier, vol. 39(3), pages 347-366, November.
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