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Journal article

What to expect when you are expecting: Are health care consumers forward-looking?

Abstract

A fundamental question in health insurance markets is how do health care consumers dynamically optimize their medical utilization under non-linear insurance contracts? Our paper tests the neoclassical prediction that a fully forward-looking agent only responds to their expected end-of-year price. Our unique identification strategy studies families during the year of childbirth who will likely satisfy their annual deductible, thereby knowing their expected end-of-year price. We find that during the year of a childbirth, fathers increase medical spending by 11% per month after their deductible is satisfied, rejecting the null of fully forward-looking consumers. This behavior cannot be explained by fathers increasing utilization in response to the childbirth itself. Furthermore, this myopia translates to a 21-24% decrease in total annual medical spending, relative to the counterfactual of fully forward-looking behavior, and is concentrated in elective procedures; we find no response in low value or urgent care. Our findings suggest the need for modeling non-linear incentives while accounting for myopic behavior when studying the medical utilization responses to health insurance.

Authors

Guo A; Zhang J

Journal

Journal of Health Economics, Vol. 67, ,

Publisher

Elsevier

Publication Date

September 1, 2019

DOI

10.1016/j.jhealeco.2019.06.003

ISSN

0167-6296

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