Digital Commons Network^™

Moral hazard and adverse selection create inefficiencies in private health insurance markets and understanding the relative importance of each factor is critical for policy.   We use claims data from a large firm which changed health insurance plan options to isolate moral hazard from plan selection.  Using an instrumental variables quantile regression approach, we estimate the differential causal impact of each health insurance plan on the entire distribution of medical expenditures.  We account for systematic sample attrition during the sample period by conditioning on a nonseparable sample selection adjustment.   Our estimates imply that 54% of the additional medical spending …