What to expect when you are expecting: Are health care consumers forward-looking?

Audrey Guo and Jonathan Zhang

Journal of Health Economics, 2019, vol. 67, issue C

Abstract: A fundamental question in health insurance markets is how do health care consumers dynamically optimize their medical utilization under non-linear insurance contracts? Our paper tests the neoclassical prediction that a fully forward-looking agent only responds to their expected end-of-year price. Our unique identification strategy studies families during the year of childbirth who will likely satisfy their annual deductible, thereby knowing their expected end-of-year price. We find that during the year of a childbirth, fathers increase medical spending by 11% per month after their deductible is satisfied, rejecting the null of fully forward-looking consumers. This behavior cannot be explained by fathers increasing utilization in response to the childbirth itself. Furthermore, this myopia translates to a 21–24% decrease in total annual medical spending, relative to the counterfactual of fully forward-looking behavior, and is concentrated in elective procedures; we find no response in low value or urgent care. Our findings suggest the need for modeling non-linear incentives while accounting for myopic behavior when studying the medical utilization responses to health insurance.

Keywords: Health behavior; Health insurance; Health care demand; Myopia; Moral hazard; Dynamic contracts (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jhecon:v:67:y:2019:i:c:s0167629618305289

DOI: 10.1016/j.jhealeco.2019.06.003

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