Health Insurance, Habits and Health Outcomes: A dynamic stochastic model of investment in health

I develop a dynamic stochastic model of individual choices about, health insurance, exercise, smoking, alcohol consumption and medical treatment. The objective is to estimate the parameters of the model to conduct counter-factual health policy experiments. The model is estimated using data on 3671 males from the Health and Retirement Study. The estimated model matches well the means, frequencies and transitions for all the choices and health states. The income and out of pocket medical expenditure trajectories also fit well. The estimates are used for two radically different counter-factual health policy experiments. The first experiment simulates the provision of comprehensive health insurance coverage wherein every individual is mandated to purchase an insurance plan that charges a premium of $1000.0 Per annum but covers all out of pocket costs. The simulations suggest that the proportion of individuals consuming alcohol falls slightly in the younger years (up to 0.05%) And rises (up to 0.4%) In the later years compared to the baseline simulations. Smoking rates show a small rise of up to 0.5%. The proportion of individuals seeking medical treatment increases by up to 49%. The second experiment simulates the withdrawal of subsidized medical care wherein all individuals are denied health insurance. Simulations reveal that the proportion of individuals consuming alcohol rises by up to 0.3% In the younger ages and decreases by a similar amount in the older ages. Smoking rates increase by up to 0.17% At the younger ages and fall by up to 0.6% At the older ages. The proportion of individuals seeking medical care falls by up to 95%. The two experiments together suggest that subsidized medical treatment increases the demand for medical care but does not significantly increase unhealthy behaviors. On the contrary withdrawal of subsidized medical treatment reduces demand for medical services but increases unhealthy behaviors at the younger ages. In particular, the model provides no evidence of the existence of a moral hazard problem associated with the provision of subsidized medical care on habits like smoking and alcohol consumption.

Medical Expenditures

5014

ISBN 0-493-32071-7