Health insurance and ex ante moral hazard: evidence from Medicare

Abstract

Basic economic theory suggests that health insurance coverage may cause a reduction in prevention activities, but empirical studies have yet to provide much evidence to support this prediction. However, in other insurance contexts that involve adverse health events, evidence of ex ante moral hazard is more consistent. In this paper, we extend the analysis of the effect of health insurance on health behaviors by allowing for the possibility that health insurance has a direct (ex ante moral hazard) and indirect effect on health behaviors. The indirect effect works through changes in health promotion information and the probability of illness that may be a byproduct of insurance-induced greater contact with medical professionals. We identify these two effects and in doing so identify the pure ex ante moral hazard effect. This study exploits the plausibly exogenous variation in health insurance as a result of obtaining Medicare coverage at age 65. We find evidence that obtaining health insurance reduces prevention and increases unhealthy behaviors among elderly men. We also find evidence that physician counseling is successful in changing health behaviors.

Health Insurance Is Associated With Preventive Care but Not Personal Health Behaviors

“…Given the inconsistent findings of prior studies exploring ex ante moral hazard associated with health insurance [5][6][7][8][9][10][11] and that the HBM would not anticipate riskier behaviors following insurance gain, 14 we hypothesized that insurance changes would not be associated with becoming nonobese (or obese), quitting (or starting) smoking, or adopting (or abandoning) consistent seatbelt use. In contrast, based on the HBM 14 and prior evidence linking having health insurance with greater use of clinical preventive services, [1][2][3][4] we hypothesized that gaining (or losing) insurance would be associated with increased (or decreased) preventive care.…”

“…[5][6][7][8][9][10][11] Some studies found that gaining health insurance was associated with decrements in such behaviors (eg, increases in smoking and obesity, decreases in car seatbelt use). 6,7,10,11 Economists use the term ex ante moral hazard (ex ante meaning "before the event") to describe such insurance-related behavior changes: the personal cost of unhealthy behavior is reduced, with increased costs to insurers. 12,13 Inconsistent with ex ante moral hazard theory but consistent with the Health Belief Model (HBM), 14 other studies found no evidence of riskier behavior following insurance gain.…”

“…5,8,9 Methodological differences limit comparisons among these studies; all employed relatively small, selected samples, and most were limited to people gaining Medicare coverage. [5][6][7][8] Economists also identify ex post ("after the fact") moral hazard to describe the increase in health care utilization associated with gaining insurance (a price-demand relationship). 13 The HBM would also anticipate that gaining health insurance would be associated with increases in preventive care because of reduced financial barriers to accessing care.…”

Competitive Markets without Commitment

“…As far as there is a similar ex ante moral hazard problem in health insurance markets (see, e.g., Dave and Kaestner [2006] for evidence), the results also make clear that underinsurance and strictly positive profits of some insurance policies in competitive health insurance markets must not be viewed as signs of market failure, calling for regulatory intervention. Instead, they are key to sustain preventive incentives and achieve Pareto efficiency.…”

Health Insurance Coverage and Risky Health Behaviors among Young Adults

“…In this context, the IV estimate is actually the ratio of the discontinuity in the probability of having a particular risky health behavior at age 19 to the discontinuity in the probability of having health insurance at the same age cutoff. 13 In parametric models that contain full set of control variables, I found that for the full sample, 5.6 percent of young adults lose their insurance coverage at age 19. At this age, the probability of consuming on average 5 or more drinks per day decreases by 1.9 percentage points.…”