Selection on moral hazard in health insurance

Abstract

We use employee-level panel data from a single rm to explore the possibility that individuals may select insurance coverage in part based on their anticipated behavioral ( moral hazard ) response to insurance, a phenomenon we label selection on moral hazard. Using a model of plan choice and medical utilization, we present evidence of heterogeneous moral hazard as well as selection on it, and explore some of its implica- tions. For example, we show that, at least in our context, abstracting from selection on moral hazard could lead to over-estimates of the spending reduction associated with introducing a high-deductible health insurance option.