Health Insurance, Medical Care, and Health Outcomes: A Model of Elderly Health Dynamics

Joint with: Zhou Yang and Edward C. Norton

Health insurance specific to one type of medical care (e.g., prescription drug coverage) creates a change in medical care consumption, beyond standard moral hazard,

arising both from the differential cost-sharing among different types of care and the relative effectiveness of different types of care in producing health. We model the choice of supplemental health insurance among Medicare beneficiaries, their medical care demand, and subsequent health outcomes over time using a dynamic model. Parameter

estimates obtained with longitudinal individual-level data from the 1992-2001 MCBS allow us to simulate behavior under different drug coverage scenarios. Prescription

drug coverage increases drug expenditures by 7 percent to 27 percent over a five-year period, depending on the source of coverage. While mortality rates fall slightly, the survivors have poorer health, leading to higher total medical expenditures.

For more information, contact Petra Todd.