EconPapers    
Economics at your fingertips  
 

Adverse Selection, Moral Hazard and the Demand for Medigap Insurance

Michael Keane () and Olena Stavrunova ()

No 2012-W10, Economics Papers from Economics Group, Nuffield College, University of Oxford

Abstract: The size of adverse selection and moral hazard e ects in health insurance markets has important policy implications. For example, if adverse selection e ects are small while moral hazard e ects are large, conventional remedies for ineciencies created by adverse selection (e.g., mandatory insurance enrolment) may lead to substantial increases in health care spending. Unfortunately, there is no consensus on the magnitudes of adverse selection vs. moral hazard. This paper sheds new light on this important topic by studying the US Medigap (supplemental) health insurance market. While both adverse selection and moral hazard e ects of Medigap have been studied separately, this is the rst paper to estimate both in an uni ed econometric framework. We develop an econometric model of insurance demand and health care expenditure, where adverse selection is measured by sensitivity of insurance demand to expected expenditure. The model allows for correlation between unobserved determinants of expenditure and insurance demand, and for heterogeneity in the size of moral hazard e ects. Inference relies on an MCMC algorithm with data augmentation. Our results suggest there is adverse selection into Medigap, but the e ect is small. A one standard deviation increase in expenditure risk raises the probability of insurance purchase by 0.037. In contrast, our estimate of the moral hazard e ect is much larger. On average, Medigap coverage increases health care expenditure by 32%.

Keywords: Health insurance; adverse selection; moral hazard; health care expenditure (search for similar items in EconPapers)
JEL-codes: I13 D82 C34 C35 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cta, nep-hea and nep-ias
Date: 2012-10-23
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.nuffield.ox.ac.uk/economics/papers/2012/PaperNovember2011.pdf (application/pdf)

Related works:
Journal Article: Adverse selection, moral hazard and the demand for Medigap insurance (2016) Downloads
Working Paper: Adverse Selection, Moral Hazard and the Demand for Medigap Insurance (2014) Downloads
Working Paper: Adverse Selection, Moral Hazard and the Demand for Medigap Insurance (2011) Downloads
Working Paper: Adverse Selection, Moral Hazard and the Demand for Medigap Insurance (2011) Downloads
Working Paper: Adverse Selection, Moral Hazard and the Demand for Medigap Insurance (2010) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nuf:econwp:1210

Access Statistics for this paper

More papers in Economics Papers from Economics Group, Nuffield College, University of Oxford Contact information at EDIRC.
Bibliographic data for series maintained by Maxine Collett ().

 
Page updated 2018-11-05
Handle: RePEc:nuf:econwp:1210