Moral Hazard in Health Insurance by Amy Finkelstein, Kenneth Arrow, Jonathan Gruber, Joseph

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By Amy Finkelstein, Kenneth Arrow, Jonathan Gruber, Joseph Newhouse, Joseph E. Stiglitz

Ethical hazard--the tendency to alter habit whilst the price of that habit could be borne by way of others--is a very difficult query while contemplating well-being care. Kenneth J. Arrow's seminal 1963 paper in this subject (included during this quantity) was once one of many first to discover the implication of ethical threat for future health care, and Amy Finkelstein--recognized as one of many world's prime specialists at the topic--here examines this factor within the context of latest American future health care policy.
Drawing on study from either the unique RAND medical insurance test and her personal examine, together with a 2008 medical insurance test in Oregon, Finkelstein offers compelling proof that medical health insurance does certainly impact clinical spending and encourages coverage suggestions that recognize and account for this. the quantity additionally beneficial properties commentaries and insights from different popular economists, together with an advent by means of Joseph P. Newhouse that gives context for the dialogue, a remark from Jonathan Gruber that considers provider-side ethical probability, and reflections from Joseph E. Stiglitz and Kenneth J. Arrow.

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Of course, we have to take into account that people hired in February may be different than people hired in October and the onset of illness can be different in February than in October. We therefore look at patterns of initial medical use for those hired into a no-deductible plan, which does not have this feature, as a control for seasonal variation in hires or medical spending. What we find is a rejection of the null of complete myopia, or the hypothesis that individuals respond only to the spot price.

The moral hazard literature has tended to ignore heterogeneity across individuals and just focus on average price sensitivity or the average slope of the demand curve. But what if we start with the observation that people may differ not only in their health but also in their price sensitivity of demand? Then you have to think about who’s going to select these high-deductible plans: Are they going to be the individuals who are more or less price sensitive? That gets to this notion of what we call selection on moral hazard.

The first is an existence question: Is the idea of moral hazard, which is an interesting theory, empirically relevant? Is the demand for medical care really price-sensitive? And the second relates to the challenge he poses about drawing policy inferences: How to estimate the likely impact of alternative health insurance policies or contracts on both the level and the growth of health care spending? IS DEMAND FOR MEDICAL CARE REALLY PRICE-SENSITIVE? What do we mean when we say moral hazard and health insurance?

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