Moral Hazard in Health Insurance: How Important Is Forward Looking Behavior?, , ,
NBER Working Paper No. 17802 We investigate whether individuals exhibit forward looking behavior in their response to the non-linear pricing common in health insurance contracts. Our empirical strategy exploits the fact that employees who join an employer-provided health insurance plan later in the calendar year face the same initial ("spot") price of medical care but a higher expected end-of-year ("future") price than employees who join the same plan earlier in the year. Our results reject the null of completely myopic behavior; medical utilization appears to respond to the future price, with a statistically significant elasticity of medical utilization with respect to the future price of -0.4 to -0.6. To try to quantify the extent of forward looking behavior, we develop a stylized dynamic model of individual behavior and calibrate it using our estimated behavioral response and additional data from the RAND Health Insurance Experiment. Our calibration suggests that the elasticity estimate may be substantially smaller than the one implied by fully forward-looking behavior, yet it is sufficiently high to have an economically significant effect on the response of annual medical utilization to a non-linear health insurance contract. Overall, our results point to the empirical importance of accounting for dynamic incentives in analyses of the impact of health insurance on medical utilization. This paper is available as PDF (509 K) or via emailA non-technical summary of this paper is available in the 2012 number 2 issue of the NBER Bulletin on Aging and Health. You can sign up to receive the NBER Bulletin on Aging and Health by email.
Machine-readable bibliographic record - MARC, RIS, BibTeX Document Object Identifier (DOI): 10.3386/w17802 Published: “Selection on Moral Hazard in Health Insurance,” with Amy Finkelstein, Stephen Ryan, Paul Schrimpf, and Mark Cullen, American Economic Review, 103(1), 178-219, February 2013. Users who downloaded this paper also downloaded* these:
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