Consequences of Government Provision and Regulation of Health Insurance

Abstract

The first two chapters of this dissertation concern the effect of public catastrophic insurance programs. In the first chapter, I show how these programs, which only protect against large health shocks, induce advantageous selection in private insurance. I use data on older Americans with Medicare insurance from the Health and Retirement Study to test if individuals with supplemental private health insurance are systematically lower-risk in states with public catastrophic insurance programs. I find that these programs decrease the average health risk for the privately insured by $700 and that a one standard deviation increase in an individual’s health risk decreases her probability of having private insurance by 4 percentage points. In the second chapter, I show that these programs reduce the incentive to invest in risk-reducing activities. I find large decreases in self-protection after a program is introduced and that individuals for whom the program is less generous are more likely to engage in self-protection. These effects are stronger for women than for men and apply to a variety of investments in health, including decisions about smoking, obesity, and cancer screening. The third chapter considers a different form of government intervention in insurance markets. In this chapter, I study laws mandating that employer-sponsored health insurance provide coverage for mental illness. I show that industries for which mental health coverage became more generous had larger increases in the average mental distress of their insured workforce. Part of the increase in generosity was due to regulations mandating coverage of mental health benefits. I then show that these regulations affected the behavior of individuals in the labor market—individuals who value more generous mental health benefits and switch jobs work longer hours after these regulations take effect, but individuals who do not value mental health benefits decrease their labor supply. These results are consistent with firms cutting back on their demand for labor due to the cost of the mandate, which leads to lower wages and a decrease in labor supply by individuals who do not value mental health benefits, but an increase in labor supply by individuals who do value mental health benefits highly.