Thus insurers, or at least those who expect that offering more high-deductible plans will lower their expenses, may experience smaller spending changes than they might expect if a random group of people were assigned to such plans.
"What we [find] is that if you base your forecasts on random assignment, you would substantially overestimate the spending reduction you can get by introducing high-deductible plans," says Finkelstein, the Ford Professor of Economics at MIT. "The people who select these plans aren't randomly drawn from the population they tend to be people who have a lower behavioral response to the [insurance] contract."
Anticipating changes in behavior
To grasp this dynamic at work, Finkelstein suggests an analogy to an all-you-can-eat restaurant where the customers are there for two reasons: one group with consistently robust appetites, and another group who, by not having to pay a la carte, can have a larger meal than usual at a decent price. When it comes to health care, she suggests, consumers can also be divided into two similar categories: those who consistently seek a lot of coverage, and those who, given greater coverage, will change their behavior, and suddenly use much more medical care.
But how much more care do people in the second group seek? The paper, "Selection on Moral Hazard in Health Insurance," published this month in the American Economic Review, answers that question by scrutinizing health-plan choices made between 2003 and 2006 by more than 4,000 employees at Alcoa, the global aluminum producer. The researchers were able to assess the overall health status of individuals, the health-plan choices employees made when switching coverage, and subsequent medical claims. The varying Alcoa plans offered different deductibles, but used the same network of health-care providers, meaning consumer choices were heavily based on financial concerns.
By analyzing the d
|Contact: Sarah McDonnell|
Massachusetts Institute of Technology