Subsidizing Addiction: Do State Health Insurance Mandates Increase Alcohol Consumption?

24 Pages Posted: 10 Nov 2003 Last revised: 28 Jan 2010

Jonathan Klick

University of Pennsylvania Law School; Erasmus School of Law; PERC - Property and Environment Research Center

Thomas Stratmann

George Mason University - Buchanan Center Political Economy; CESifo (Center for Economic Studies and Ifo Institute)

Abstract

We include insurance for addiction treatment in the standard rational addiction model and show that an increase in the level of insurance for addiction treatment induces a forward-looking individual to consume more of a harmfully addictive good currently. We test this implication using cross-state variation in the adoption of mental health parity mandates. We examine the effects of these mandates on the consumption of alcohol and find that parity legislation leads to a statistically significant increase in alcohol consumption. To account for the possible endogeneity of the adoption of mental health parity mandates, we perform an instrumental variables analysis, and find that the Ordinary Least Squares significantly underestimates the insurance effect on alcohol consumption.

Keywords: Rational Addiction, Alcohol, Mental Health, Insurance, Parity

JEL Classification: I12, I18, K32, J32

Suggested Citation

Klick, Jonathan and Stratmann, Thomas, Subsidizing Addiction: Do State Health Insurance Mandates Increase Alcohol Consumption?. Journal of Legal Studies, Vol. 35, p. 175, 2006. Available at SSRN: https://ssrn.com/abstract=453500 or http://dx.doi.org/10.2139/ssrn.453500

Jonathan Klick (Contact Author)

University of Pennsylvania Law School ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States
2157463455 (Phone)

Erasmus School of Law ( email )

3000 DR Rotterdam
Netherlands

PERC - Property and Environment Research Center

2048 Analysis Drive
Suite A
Bozeman, MT 59718
United States

Thomas Stratmann

George Mason University - Buchanan Center Political Economy ( email )

4400 University Drive
Fairfax, VA 22030
United States
703-993-2330 (Phone)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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