Incentives in Obesity and Health Insurance

By Kelly, Inas Rashad; Markowitz, Sara | Inquiry, Winter 2009 | Go to article overview

Incentives in Obesity and Health Insurance


Kelly, Inas Rashad, Markowitz, Sara, Inquiry


Health insurance is widely regarded as essential for financing the production of good health, hut is insurance always benficial for our health? Ex ante moral hazard may induce individuals with insurance to engage in behaviors that they otherwise would not undertake in the absence of insurance. Using data from the 1993 2002 Behavioral Risk Factor Surveillance System, we attempt to isolate the effects of ex ante moral hazard to determine the potential consequence of having health insurance on measures of body weight, in our analyses, we control for a variety of confounding factors that may influence body weight and address the endogenous nature of health insurance. Our results suggest that having insurance is associated with higher body mass but not the probability of being obese.

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Health insurance is widely regarded as essential for financing the production of good health, but is insurance always beneficial for our health? Insurance reduces the monetary cost that individuals pay for health care; however, this reduction also can lead people to change their behaviors. This "'moral hazard" associated with health insurance can manifest itself not only by altering purchasing decisions, but also by changing other health-related behaviors. These two types of behavioral changes are termed "ex post moral hazard" and "ex ante moral hazard," respectively (Ehrlich and Becker 1972).

Ex post moral hazard arises through visiting a provider more frequently upon receiving health insurance. With ex ante moral hazard, the change in behavior occurs prior to physician contact. It results from engaging in riskier behaviors upon receiving health insurance, knowing that the option of visiting a physician is available. It is this ex ante moral hazard in particular that may be bad for one's health. In the absence of insurance, individuals have strong incentives to engage in behaviors that help prevent injury and illness--for example, eating nutritious foods, exercising regularly, and avoiding risky activities. In the presence of insurance, however, the incentives to engage in health-promoting behaviors are lessened as the costs incurred from being sick are lowered.

In the United States, the percentage of health care expenditures paid directly by consumers has been declining fairly consistently since the 1960s. Data from the Centers for Medicare and Medicaid Services (CMS) from 1960 to 2004 show this decline, revealing that the share of total personal health care expenditures paid for by consumers fell from 47% in 1960 to 13% in 2004. Personal health expenditures include payments for hospital, physician and other professional care, nursing home and home health care, durable medical equipment, and prescription drugs. At the same time, health care costs are increasing (now estimated to be rising twice as fast as inflation) and fewer people are being covered by health insurance. Individuals who lose insurance have incentives to engage in preventive, health-promoting activities, while those who have insurance and pay less out of pocket may have the opposite reaction. The research question in this paper is whether insurance status is associated with preventive health behaviors. We use the case of body weights in the United States to answer this question.

Body weight and obesity are good outcomes to study because plausibly weight may be affected by the availability of health insurance and the ex ante moral hazard problem. Most experts agree that body weight can be lowered with proper diet and exercise, making obesity and its associated conditions preventable by a change in behaviors not directly related to the receipt of medical care. Although the "disease" status of obesity is still debated, health insurance for the most part does not cover weight loss treatment and only in isolated cases does it cover gastric bypass surgery, which carries many risks and is recommended only for the morbidly obese, (1) Nevertheless, individuals may alter their behavior after receiving health insurance due to the host of obesity-related diseases, such as diabetes and heart disease, that are covered by health insurance. …

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