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BEHAVIORAL HAZARD IN HEALTH INSURANCE.

ABSTRACT: A fundamental implication of standard moral hazard models is overuse of low-value medical care because copays are lower than costs. In these models, the demand curve alone can be used to make welfare statements, a fact relied on by much empirical work. There is ample evidence, though, that people misuse care for a different reason: mistakes, or "behavioral hazard." Much high-value care is underused even when patient costs are low, and some useless care is bought even when patients face the full cost. In the presence of behavioral hazard, welfare calculations using only the demand curve can be off by orders of magnitude or even be the wrong sign. We derive optimal copay formulas that incorporate both moral and behavioral hazard, providing a theoretical foundation for value-based insurance design and a way to interpret behavioral "nudges." Once behavioral hazard is taken into account, health insurance can do more than just provide financial protection - it can also improve health care efficiency.

SUBMITTER: Baicker K

PROVIDER: S-EPMC9121790 | biostudies-literature | 2015 Nov

REPOSITORIES: biostudies-literature

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BEHAVIORAL HAZARD IN HEALTH INSURANCE.

Baicker Katherine K Mullainathan Sendhil S Schwartzstein Joshua J

The quarterly journal of economics 20150715 4

A fundamental implication of standard moral hazard models is overuse of low-value medical care because copays are lower than costs. In these models, the demand curve alone can be used to make welfare statements, a fact relied on by much empirical work. There is ample evidence, though, that people misuse care for a different reason: mistakes, or "behavioral hazard." Much high-value care is underused even when patient costs are low, and some useless care is bought even when patients face the full ...[more]

PMID: 35602854

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Project description:ImportanceYoung adults have high levels of behavioral health needs but often lack health insurance. Recent health reforms have increased coverage, but it is unclear how use of hospital-based care changed after expanding insurance. OBJECTIVE To evaluate the association between health insurance coverage expansions and use of hospital-based care among young adults with behavioral health diagnoses.Design, setting, and participantsQuasi-experimental analyses of community hospital inpatient and emergency department use from 2003-2009 based on hospital discharge data, comparing differential changes in service use among young adults with behavioral health diagnoses in Massachusetts vs other states before and after Massachusetts' 2006 health reform. This population-based sample included inpatient admissions (n = 2,533,307, representing 12,821,746 weighted admissions across 7 years) nationwide and emergency department visits (n = 6,817,855 across 7 years) from Maryland and Massachusetts for 12- to 25-year-old patients.Main outcomes and measuresInpatient admission rates per 1000 population for primary diagnosis of any behavioral health disorder by diagnosis; emergency department visit rates per 1000 population by behavioral health diagnosis; and insurance coverage for hospital discharges.ResultsAfter 2006, uninsurance among 19- to 25-year-old individuals in Massachusetts decreased from 26% to 10% (16 percentage points; 95% CI, 13-20). Young adults experienced relative declines in inpatient admission rates of 2.0 per 1000 for primary diagnoses of any behavioral health disorder (95% CI, 0.95-3.2), 0.38 for depression (95% CI, 0.18-0.58), and 1.3 for substance use disorder (95% CI, 0.68-1.8). The increase in emergency department visits with any behavioral health diagnosis after 2006 was lower among young adults in Massachusetts compared with Maryland (16.5 per 1000; 95% CI, 11.4-21.6). Among young adults in Massachusetts, the percentage of behavioral health discharges that were uninsured decreased by 5.0 (95% CI, 3.0-7.2) percentage points in inpatient settings and 5.0 (95% CI, 1.7-7.8) percentage points in emergency departments relative to other states.Conclusions and relevanceExpanded health insurance coverage for young adults was not associated with large increases in hospital-based care for behavioral health, but it increased financial protection for young adults with behavioral health diagnoses and for the hospitals that care for them.

Dataset Information

BEHAVIORAL HAZARD IN HEALTH INSURANCE.

Publications

BEHAVIORAL HAZARD IN HEALTH INSURANCE.

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