Moral Hazard in Health Insurance

In this short and accessible book, Amy Finkelstein—winner of the 2012 John Bates Clark award—tackles the tricky question of moral hazard, which is the tendency to take risks when the cost will be borne by others. Kenneth J. Arrow’s seminal 1963 paper, “Uncertainty and the Welfare Economics of Medical Care”—included in the volume—was one of the first to explore the implication of moral hazard for healthcare, and in this book, Finkelstein examines this issue in the context of contemporary American health care policy.

Showcasing research from a 1972 RAND experiment and her own findings from an ongoing Medicaid study in Oregon, Finkelstein presents compelling evidence that health insurance does indeed affect medical spending and encourages policy solutions that acknowledge and account for this. The volume also features commentaries and insights from other renowned economists, including an introduction from Joseph Newhouse that provides context for the discussion, a commentary from Jonathan Gruber that considers provider-side moral hazard, and reflections from Joseph E. Stiglitz and Kenneth J. Arrow.