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INSURANCE‐INDUCED MORAL HAZARD: A DYNAMIC MODEL OF WITHIN‐YEAR MEDICAL CARE DECISION MAKING UNDER UNCERTAINTY
Author(s) -
Cronin Christopher J.
Publication year - 2019
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12349
Subject(s) - moral hazard , morale hazard , actuarial science , medical decision making , health care , consumption (sociology) , medical care , economics , health insurance , econometrics , self insurance , microeconomics , medicine , incentive , sociology , economic growth , social science , family medicine
This study quantifies the moral hazard effect of health insurance on medical expenditure by estimating a dynamic model of within‐year medical care consumption that allows for insurance selection, endogenous health transitions, and individual uncertainty about medical care prices in an environment where insurance has nonlinear cost‐sharing features. The results suggest that moral hazard accounts for 53.1%, on average, of total annual medical expenditure when insured. This estimate is significantly different, and generally larger, than that produced by an alternative model that is representative of the annual medical care decision‐making models commonly found in the literature.