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Estimating asymmetric information effects in health care with uninsurable costs

  • Yan Zheng
  • Tomislav Vukina
  • Xiaoyong Zheng
Research article

Abstract

We use a structural approach to separately estimate moral hazard and adverse selection effects in health care utilization using hospital invoices data. Our model explicitly accounts for the heterogeneity in the non-insurable transactions costs associated with hospital visits which increase the individuals’ total cost of health care and dampen the moral hazard effect. A measure of moral hazard is derived as the difference between the observed and the counterfactual health care consumption. In the population of patients with non life-threatening diagnoses, our results indicate statistically significant and economically meaningful moral hazard. We also test for the presence of adverse selection by investigating whether patients with different health status sort themselves into different health insurance plans. Adverse selection is confirmed in the data because patients with estimated worse health tend to buy the insurance coverage and patients with estimated better health choose not to buy the insurance coverage.

Keywords

Moral hazard Adverse selection Health insurance Transaction costs 

JEL Classification

C14 D82 I11 

Notes

Compliance with ethical standards

Conflict of interest

No potential conflicts of interest exist.

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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.JP Morgan ChaseWilmingtonUSA
  2. 2.Department of Agricultural and Resource EconomicsNorth Carolina State UniversityRaleighUSA
  3. 3.Department of EconomicsNorth Carolina State UniversityRaleighUSA

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