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

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

Ethical hazard--the tendency to alter habit while the price of that habit should be borne via others--is a very difficult query whilst contemplating wellbeing and fitness care. Kenneth J. Arrow's seminal 1963 paper in this subject (included during this quantity) used to be one of many first to discover the implication of ethical threat for overall healthiness care, and Amy Finkelstein--recognized as one of many world's leading specialists at the topic--here examines this factor within the context of up to date American well-being care policy.
Drawing on learn from either the unique RAND medical health insurance test and her personal study, together with a 2008 medical insurance scan in Oregon, Finkelstein provides compelling proof that medical health insurance does certainly impact scientific spending and encourages coverage ideas that recognize and account for this. the amount additionally gains commentaries and insights from different popular economists, together with an creation via Joseph P. Newhouse that gives context for the dialogue, a statement from Jonathan Gruber that considers provider-side ethical danger, and reflections from Joseph E. Stiglitz and Kenneth J. Arrow.

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This is a fact of life. It may not be what we wished for, but we have to think about it, grapple with it, and think about its implications for policy. Some of the implications have to do with what price the individual considers: is it the spot price? the end-of-year Q 40 Q MORAL HAZARD IN HEALTH INSURANCE price? I discussed this in the context of high-deductible health insurance accounts, but one can also think of this in terms of Medicare Part D, the prescription drug program for the elderly. One can consider the famous “doughnut hole,” which is a range of spending in which suddenly an individual’s price goes back up to 100 percent.

Newhouse, Joseph P. 1992. ” Journal of Economic Perspectives 6(3):3–21. , and the Insurance Experiment Group. 1993. Free for All: Lessons from the Health Insurance Experiment. : Harvard University Press. Pauly, Mark. 1968. ” American Economic Review 58(3, part 1):531–37. Rothschild, Michael, and Joseph Stiglitz. 1976. ” Quarterly Journal of Economics 90:630–49. Q 43 Q COMMENTARY JONATHAN GRUBER I was thrilled to act as a commentator on Amy Finkelstein’s lecture in honor of Ken Arrow. Amy is a colleague of mine at MIT, and I remember diligently working to recruit her to come to graduate school there when she was on the Council of Economic Advisors in the late 1990s.

But the real story in the health care sector is not the level of spending so much as it is growth, especially relative to GDP. Figure 3 shows the growth in health expenditure as a share of GDP. Health expenditure as a share of GDP has grown from about 5 percent in 1960 to about 18 percent in 2010. 20 Percentage 15 10 5 0 1960 1970 1980 1990 2000 Year Figure 3 National health expenditures as a percentage of GDP, 1960–2010. Source: Centers for Medicare and Medicaid Services (2012). Q 35 Q 2010 MORAL HAZARD IN HEALTH INSURANCE What is behind the growth of health spending?

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