Health Insurance and Ex Ante Moral Hazard: Evidence from Medicare

52 Pages Posted: 22 Dec 2006 Last revised: 19 May 2021

See all articles by Dhaval Dave

Dhaval Dave

Bentley University - Department of Economics; National Bureau of Economic Research (NBER) - NY Office

Robert Kaestner

University of Chicago; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: December 2006

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.

Suggested Citation

Dave, Dhaval and Kaestner, Robert, Health Insurance and Ex Ante Moral Hazard: Evidence from Medicare (December 2006). NBER Working Paper No. w12764, Available at SSRN: https://ssrn.com/abstract=951920

Dhaval Dave

Bentley University - Department of Economics ( email )

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Robert Kaestner (Contact Author)

University of Chicago ( email )

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National Bureau of Economic Research (NBER)

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