Asymmetric Information in Health Insurance: Evidence from the National Medical Expenditure Survey

Abstract

Adverse selection is perceived to be a major source of market failure in insurance markets. There is little empirical evidence on the extent of the problem. We estimate a structural model of health insurance and health care choices using data on single individuals from the NMES. A robust prediction of adverse-selection models is that riskier types buy more coverage and, on average, end up using more care. We test for unobservables linking health insurance status and health care consumption. We find no evidence of informational asymmetries.

Cellular Service Demand: Biased Beliefs, Learning, and Bill Shock

“…17 These are natural consequences of usage choices made under uncertainty about ex post marginal price. Hence the standard model (Cardon andHendel 2001, Reiss andWhite 2005), which assumes perfect consumer foresight, fits our data poorly. Now we turn to evidence that consumers are inattentive.…”

“…The standard approach to this problem assumes that consumers can forecast their usage perfectly, and so respond to the ex post marginal price (Cardon and Hendel 2001, Reiss and White 2005, Lambrecht et al 2007. A recent alternative relaxes perfect foresight but assumes consumers attentively track their usage from call to call (Yao et al 2012).…”

“…The second stylized fact, marginal-price uncertainty, naturally arises whenever consumers make a series of small purchase choices that are aggregated and billed under a multipart tariff, as in cellular phone service, electricity, and health care. Addressing such marginal-price uncertainty represents a challenge for the literature which has typically side-stepped the issue by assuming that consumers can perfectly predict their future usage (Cardon and Hendel 2001, Reiss and White 2005, Lambrecht, Seim and Skiera 2007, or that consumers believe they can perfectly predict their usage up to an implementation error which they ignore (Iyengar, Ansari and Gupta 2007). (Notable exceptions are Yao, Mela, Chiang and Chen (2012) and Jiang (2012).…”

Hips and hearts: The variation in incentive effects of insurance across hospital procedures

“…In most of these studies, moral hazard is ignored in order to focus on the identification of the two other sources of correlation between insurance and outcomes. (An exception to this is the paper on health insurance by Cardon and Hendel (2001).) Previous Australian studies looking at the effects of insurance on utilisation have generally found positive effects although the magnitudes vary a lot across studies.…”

The Truth About Moral Hazard and Adverse Selection

“…Cardon and Hendel (2001), using data on single employed individuals (18 to 65 years old) from the National Medical Expenditure Survey (NMES), said no. So I don't lie awake nights, worrying about adverse selection for the bulk of the population.…”