All In Their Heads

A randomized insurance experiment found that on average people who thought they had a higher health risk bought more insurance. But they didn’t actually have higher risk:

[In] a large-scale randomized field experiment in Mexico … [in ’04 on] a voluntary health insurance option [=SP] … ‘high risk’ agents are, ceteris paribus, more likely to opt into SP—although the insured are not more ‘risky’ on average. That is, despite the absence of a positive raw correlation between agents’ insurance status and proxies of risk, this paper presents evidence of the systematic selection predicted by theory. In particular, individuals who rated their health as “bad or very bad” before SP became available are 6.9 percentage points more likely to sign up for SP than those in “good or very good” health (compared to an overall treatment effect of 29 percentage points).

Curiously, however, agents in the experiment sort only on pre-period medical expenditures and subjective well-being. There appears to be no selection on objective measures of health—possibly because individuals are less aware of the latter. … [Regarding] preventive care decline with insurance coverage, the effect of SP on the utilization of these services is negative and non-trivial in size. Given the positive price effect, such a decline is likely due to ex ante moral hazard. (more)

This supports the idea that medicine is less about health than health-related feelings. If medicine were more about the reassurance that comes from being taken care of medically (because medicine is a standard way for others to show that they care about us), it makes sense that we want more insurance when we feel more vulnerable to illness, but that sense of vulnerability would  have a lot more to do with the social assurances we desire than our state of health.

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  • http://www.andreasmoser.wordpress.com Andreas Moser

    I am not sure I get the point of having “more health insurance”.
    If I have two or three health insurances, I will still only go the doctor as little as possible which is just about as much as necessary to survive without pain or ugly deformations in my face.
    Even if you gave health insurance to me for free, I would not go to the dentist if it can at all be avoided or postponed.

    • http://www.andreasmoser.wordpress.com Andreas Moser

      Or am I just too European and used to universal, tax-funded healthcare?

      • Bob Knaus

        No, you dislike going to the doctor. This differentiates you from a substantial fraction of humans, who derive utility from the experience.

    • Matt

      If what you say is true, then you are not a marginal consumer. A marginal consumer with more insurance might go to the doctor for a mild ankle sprain. With less insurance, that same person might just tape it up and give it some rest.

  • http://www.andreasmoser.wordpress.com Andreas Moser

    Does this prove that people don’t buy what they think they don’t need?
    I actually had a hunch that this is how the world works.

  • Huzzah

    Ad hoc rationalization…

  • Mathew

    Personally I think this is evidence we aren’t actually taking good care of people with modern medicine. People with chronic conditions that aren’t life-threatening often have worse views of their health than people without those conditions.

    People with back pain may not be in worse shape than other people, but their self reported health might be worse. They might buy more insurance than other folks.

    This has been my experience with my various health conditions. For years I struggled with medical conditions that doctors had little understanding of and even fewer ways to treat. But I always get the most insurance because subjectively I feel like I’m at death’s door. Don’t discount peoples subjective experiences, and the psychic effects of chronic pain.

  • Matt

    I’m not sure I understand. You’re saying that people who think they have high health risk want more health insurance, even if they don’t actually have higher risk. Okay. But what does this have to do with signaling? Isn’t the error just caused by, well, a factual mistake?

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