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INDIVIDUAL WELFARE WHEN CONSUMERS CAN SHOP FOR HEALTH INSURANCE
Author(s) -
Dusansky Richard,
Koç Çağatay
Publication year - 2016
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.12296
Subject(s) - moral hazard , endogeneity , welfare , economics , morale hazard , health care , consumer choice , public economics , actuarial science , self insurance , outcome (game theory) , deadweight loss , insurance policy , key person insurance , casualty insurance , health insurance , incentive , auto insurance risk selection , microeconomics , economic growth , market economy , econometrics
The statewide system of health insurance exchanges established by the Affordable Care Act (ACA) of 2010 will allow millions of U.S. citizens to change their health care policies more easily than they can switch automobile or homeowner insurance coverages, because deniability based on prior claim history is illegal. Focusing on this consumer endogeneity of health insurance policy choice, we examine the individual moral hazard welfare implications of a reduction in the price of medical care, which is a potential consequence of the ACA . We show that endogenous policy choice plays a key role in determining the welfare outcome. While moral hazard welfare improvement is not precluded, a distinctly possible outcome is that the consumer revises his/her choice of insurance policy so as to retain some portion of the reduction in expenditure risk caused by the medical care price decrease. In this event, moral hazard welfare loss is higher than it was before the price decrease, although the increased loss is tempered by the endogenous contract choice effect. This result resuscitates an old conventional wisdom. ( JEL I11, I13, I30)