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Moral Hazard in Health Insurance: Do Dynamic Incentives Matter?

Author

Listed:
  • Aviva Aron-Dine

    (Office of Management and Budget)

  • Liran Einav

    (Stanford University)

  • Amy Finkelstein

    (Massachusetts Institute of Technology)

  • Mark Cullen

    (Stanford School of Medicine)

Abstract

Using data from employer-provided health insurance and Medicare Part D, we investigate whether health care utilization responds to the dynamic incentives created by the nonlinear nature of health insurance contracts. We exploit the fact that because annual coverage usually resets every January, individuals who join a plan later in the year face the same initial (“spot”) price of health care but a higher expected end-of-year (“future”) price. We find a statistically significant response of initial utilization to the future price, rejecting the null that individuals respond only to the spot price. We discuss implications for analysis of moral hazard in health insurance.

Suggested Citation

  • Aviva Aron-Dine & Liran Einav & Amy Finkelstein & Mark Cullen, 2015. "Moral Hazard in Health Insurance: Do Dynamic Incentives Matter?," The Review of Economics and Statistics, MIT Press, vol. 97(4), pages 725-741, October.
    • Handle: RePEc:tpr:restat:v:97:y:2015:i:4:p:725-741
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    File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/REST_a_00518
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    More about this item

    Keywords

    health insurance; moral hazard; dynamic incentives;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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