Moral Hazard, Adverse Selection and Health Expenditures: A Semiparametric Analysis

Abstract

Theoretical models predict asymmetric information in health insurance markets may generate inefficient outcomes due to adverse selection and moral hazard. However, previous empirical research has found it difficult to disentangle adverse selection from moral hazard in health care. We empirically study this question by using data from the Health and Retirement Study to estimate a structural model of the demand for health insurance and medical care. Using a two-step semi-parametric estimation strategy we find significant evidence of moral hazard, but not of adverse selection.

The effects of access to health insurance: Evidence from a regression discontinuity design in Peru

“…Chiappori and Salanié (2000), Abbring et al (2003a), and Abbring et al (2003b) investigate moral hazard in the market for car insurance. Finkelstein and Poterba (2004), Bajari et al (2006), Fang et al (2006), Aron-Dine et al (2015) and Einav et al (2013) study adverse selection and moral hazard in the context of health insurance in developed countries. Einav et al (2013) study the interrelation between adverse selection and moral hazard and term it "selection on moral hazard".…”

A dynamic analysis of the demand for health insurance and health care

“…The household can positively influence health by making health investments. This assumption is similar to Bajari et al (2006), who assume that agents derive utility from consumption and health investments. The relative preference for health and consumption is driven by a parameter α.…”

“…However, the household in point D will always buy health insurance, while the less healthier household in point A never takes health insurance. This connects to the 'heterogeneous preferences' 3 We follow Bajari et al (2006) and Cardon and Hendel (2001) in interpreting health investments while being in good health as preventive investments.…”

“…These models have the advantage that they allow for individual specific effects, which capture for example heterogeneity in preferences and health risk. Our empirical models differ in this aspect from the static empirical frameworks of Bajari et al (2006), Fang et al (2008) and Buchmueller et al (2008). The data we use to estimate these models are from the Living in Ireland Survey, which contains panel data from 1994 to 2001.…”

Remedies for Sick Insurance

“…Feldstein (1973), Pauly (1974), Rothschild and Stiglitz (1976), Spence (1976), Riley (1975Riley ( , 1979, Wilson (1979Wilson ( , 1980, Cutler and Reber (1998), Pauly and Nicholson (1999), Zeckhauser (2000) Abbring et al (2003), Bajari et al (2006), Chiappori et al (2006), Vera-Hernández (2007, 2010), Heiss-McFadden-Winter (2007, Gruber (2008), and Chade and Schlee (2011) discussions information in the context of health insurance. 4 See Cardon andHendel (2001), de Meza andWebb (2001), Finkelstein and McGarry (2003), Finklestein-Poterba (2004), Mahdavi (2005), Chiappori (2000), Chiappori et al (2006), Fang, Keane, and Silverman (2006), De Donder and Hindriks (2006), Cutler, Finkelstein, and McGarry (2008), and Buchmueller (2008.…”