Moral Hazard in Health Insurance

Moral hazard-the tendency to change behavior when the cost of that behavior will be borne by others-is a particularly tricky question when considering health care. Kenneth J. Arrow's seminal 1963 paper on this topic (included in this volume) was one of the first to explore the implication of moral hazard for health care, and Amy Finkelstein-recognized as one of the world's foremost experts on the topic-here examines this issue in the context of contemporary American health care policy.

Drawing on research from both the original RAND Health Insurance Experiment and her own research, including a 2008 Health Insurance Experiment in Oregon, Finkelstein presents compelling evidence that health insurance does indeed affect medical spending and encourages policy solutions that acknowledge and account for this. The volume also features commentaries and insights from other renowned economists, including an introduction by Joseph P. Newhouse that provides context for the discussion, a commentary from Jonathan Gruber that considers provider-side moral hazard, and reflections from Joseph E. Stiglitz and Kenneth J. Arrow.

“This thorough and lucid work by Amy Finkelstein should convince anyone of the existence and importance of moral hazard in health insurance. Patient cost sharing powerfully affects not only the use, quality, and price of care for consumers at all income levels, but also the costs and premiums of public and private insurances. She also clearly outlines the challenge in harnessing the power of cost sharing to discourage beneficial care that is not worth its cost, so that medical spending is controlled but care of high value is sustained.”

Any course in health economics will benefit from Amy Finkelstein's concise and accessible synthesis of the literature on moral hazard (a.k.a. demand response). I recommend it highly. -- Randall P. Ellis, Boston University The relationship between health insurance and medical care, termed moral hazard, is one of the most fundamental in health economics. This volume focuses on that relationship, and with her crisp, clear writing, Amy Finkelstein makes state-of-the-art research in health economics accessible to readers with limited technical backgrounds-while also providing the intuition that underlies this research and that often escapes the technically sophisticated. I can only say "Bravo!" for the superb contribution made by this book. -- Michael Grossman, City University of New York and National Bureau of Economic Research -- Mark V. Pauly, University of Pennsylvania [Moral Hazard in Health Insurance] reads like a fireside chat among a group of distinguished, articulate health economists. Choice

Amy Finkelstein is the Ford Professor of Economics at the Massachusetts Institute of Technology, codirector of JPAL North America, and codirector of the Public Economics Program at the National Bureau of Economic Research. She is a recipient of the John Bates Clark medal from the American Economic Association, the ASHEcon Medal from the American Society of Health Economics, and the Elaine Bennett Research Prize, awarded by the Committee on the Status of Women in the Economics Profession.

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