Working Paper: NBER ID: w17857
Authors: Robin McKnight; Jonathan Reuter; Eric Zitzewitz
Abstract: Household demand for actuarially unfair insurance against small risks has long puzzled economists. One way to potentially rationalize this demand is to recognize that (non-life) insurance is an incentive-compatible means of engaging an expert buyer. To quantify the benefits of expert buying, we compare prices paid by the insured and uninsured for health care. In categories of health care where uncompensated care is more difficult to obtain (drugs, doctor office visits, and hospital outpatient visits), we find that insurers pay 10-20% less than the uninsured. For forms of care where payment by the uninsured is more likely to be negotiated after services are rendered (hospitalizations and emergency room visits) the uninsured pay about 30% less on average, due largely to the nontrivial share of uninsured who pay 5% or less of their billed charges. At least in settings where free services are difficult to obtain, expert buying is an important benefit of insurance. We discuss the implications of the delegated-purchasing view of insurance for con-sumer-driven health insurance and for self-insurance by employers.
Keywords: insurance; health care; delegated purchasing
JEL Codes: G22; I13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Insurance Status (I13) | Prices Paid (P22) |
| Insured Individuals (G52) | Prices Paid in Outpatient Settings (I11) |
| Uninsured Individuals (I13) | Prices Paid in Emergency Room Visits (I11) |
| Insurance Contracts (G52) | Prices Paid (P22) |
| Time Since 2006 (C41) | Prices Paid by Insured and Uninsured (I13) |