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Health insurance and ex ante moral hazard: evidence from Medicare

  • Dhaval Dave
  • Robert Kaestner
Article

Abstract

Basic economic theory suggests that health insurance coverage may cause a reduction in prevention activities, but empirical studies have yet to provide much evidence to support this prediction. However, in other insurance contexts that involve adverse health events, evidence of ex ante moral hazard is more consistent. In this paper, we extend the analysis of the effect of health insurance on health behaviors by allowing for the possibility that health insurance has a direct (ex ante moral hazard) and indirect effect on health behaviors. The indirect effect works through changes in health promotion information and the probability of illness that may be a byproduct of insurance-induced greater contact with medical professionals. We identify these two effects and in doing so identify the pure ex ante moral hazard effect. This study exploits the plausibly exogenous variation in health insurance as a result of obtaining Medicare coverage at age 65. We find evidence that obtaining health insurance reduces prevention and increases unhealthy behaviors among elderly men. We also find evidence that physician counseling is successful in changing health behaviors.

Keywords

Insurance Moral hazard Health behavior 

JEL Classification

I12 I18 

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Copyright information

© Springer Science+Business Media, LLC 2009

Authors and Affiliations

  1. 1.Department of EconomicsBentley UniversityWalthamUSA
  2. 2.National Bureau of Economic ResearchCambridgeUSA
  3. 3.Institute of Government and Public AffairsUniversity of Illinois at ChicagoChicagoUSA

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