Adverse Selection, Moral Hazard and the Demand for Medigap Insurance

Michael Keane () and Olena Stavrunova ()

No 2014-W02, 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 mag- nitudes 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 a uni ed econometric framework. 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 insur- ance purchase by 0.055. In contrast, our estimate of the moral hazard e ect is much larger. On average, Medigap coverage increases health care expenditure by 24%.

Keywords: Health insurance; adverse selection; moral hazard; health care expendi- ture (search for similar items in EconPapers)
JEL-codes: C34 C35 D82 I13 (search for similar items in EconPapers)
Pages: 76 pages
Date: 2014-07-08
New Economics Papers: this item is included in nep-com, nep-cta and nep-ias
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Related works:
Journal Article: Adverse selection, moral hazard and the demand for Medigap insurance (2016)
Working Paper: Adverse Selection, Moral Hazard and the Demand for Medigap Insurance (2012)
Working Paper: Adverse Selection, Moral Hazard and the Demand for Medigap Insurance (2011)
Working Paper: Adverse Selection, Moral Hazard and the Demand for Medigap Insurance (2011)
Working Paper: Adverse Selection, Moral Hazard and the Demand for Medigap Insurance (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:nuf:econwp:1402

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