Working Paper: NBER ID: w15410
Authors: Jean Marie Abraham; Thomas DeLeire; Anne Beeson Roylance
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.
Keywords: underinsurance; moral hazard; health insurance
JEL Codes: I10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| firm size (L25) | underinsurance rates (G52) |
| moral hazard (G52) | underinsurance rates (G52) |
| insurance generosity (G52) | spending (H72) |
| spending (H72) | underinsurance rates (G52) |
| moral hazard (G52) | medical care utilization (I11) |
| moral hazard (G52) | misclassification of underinsurance (G52) |