Moral Hazard Matters: Measuring Relative Rates of Underinsurance Using Threshold Measures

Jean Marie Abraham, Thomas DeLeire and Anne Beeson Royalty ()

No 15410, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper illustrates the impact of moral hazard for estimating relative rates of underinsurance and to present an adjustment method to correct for this source of bias. Individuals or households are often classified as underinsured if out-of-pocket spending on medical care relative to income exceeds some threshold. We show that, without adjustment, this common threshold measure of underinsurance will underestimate the number with low levels of insurance coverage due to moral hazard. We propose an adjustment method and apply it to the specific case of estimating the difference in rates of underinsurance among small- versus large-firm workers with full-year, employer-sponsored insurance. Using data from the 2005 Medical Expenditure Panel Survey, we find that after applying the adjustment, the underinsurance rate of small-firm households increases by approximately 20% with the adjustment for moral hazard and the difference in underinsurance rates between large firm and small firm households widens substantially. Adjusting for moral hazard makes a sizeable difference in the estimated prevalence of underinsurance using a threshold measure.

JEL-codes: I10 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cta and nep-ias
Date: 2009-10
Note: HE
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