Moral Hazard in Health Insurance: What We Know and How We Know it

36 Pages Posted: 28 Nov 2017

See all articles by Liran Einav

Liran Einav

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Amy Finkelstein

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: November 2017

Abstract

We describe research on the impact of health insurance on healthcare spending ("moral hazard"), and use this context to illustrate the value of and important complementarities between different empirical approaches. One common approach is to emphasize a credible research design; we review results from two randomized experiments, as well as some quasi-experimental studies. This work has produced compelling evidence that moral hazard in health insurance exists – that is, individuals, on average, consume less healthcare when they are required to pay more for it out of pocket – as well as qualitative evidence about its nature. These studies alone, however, provide little guidance for forecasting healthcare spending under contracts not directly observed in the data. Therefore, a second and complementary approach is to develop an economic model that can be used out of sample. We note that modeling choices can be consequential: different economic models may fit the reduced form but deliver different counterfactual predictions. An additional role of the more descriptive analyses is therefore to provide guidance regarding model choice.

Suggested Citation

Einav, Liran and Finkelstein, Amy, Moral Hazard in Health Insurance: What We Know and How We Know it (November 2017). NBER Working Paper No. w24055. Available at SSRN: https://ssrn.com/abstract=3077783

Liran Einav (Contact Author)

Stanford University - Department of Economics ( email )

Landau Economics Building
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Stanford, CA 94305-6072
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928-223-4973 (Fax)

National Bureau of Economic Research (NBER)

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Amy Finkelstein

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Cambridge, MA 02142
United States
617-588-0361 (Phone)
617-868-7242 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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