Author: Chernew, Michael E. ; Frick, Kevin D.
Working Paper: Beneficial Moral Hazard And The Theory Of The Second Best (PDF) ; 8/08
Author: Chernew, Michael ; Cutler, David ; Keenan, Patricia
Working Paper: Rising Health Care Costs and the
Decline in Insurance Coverage (PDF)
; March 2005
Research Highlight 10 (HTML) (PDF) ; December 2005
Q & A with Michael Chernew, Ph.D. (HTML) ; December 2005
Research Findings (HTML)
Objective: To determine the impact of rising health care premiums on coverage rates. An
accurate assessment of the impact of rising health care costs on health insurance coverage rates is
an important component of policy debates surrounding efforts to reduce the number of
Data Sources & Study Setting: Our analysis is based on two cohorts of non-elderly Americans
residing in 64 large MSAs surveyed in the Current Population Survey in 1989-1991 and 1998-
2000. Measures of premiums are based on data from the Health Insurance Association of
America and the Kaiser Family Foundation/Health Research and Educational Trust Survey of
Employer-Sponsored Health Benefits.
Study Design: Probit regression and instrumental variable techniques, are used to estimate the
association between rising local health insurance costs and the falling propensity for individuals
to have any health insurance coverage, controlling for a rich array of economic, demographic,
and policy covariates.
Principal Findings: Over half of the decline in coverage rates experienced over the 1990s is
attributable to the increase in health insurance premiums (1.6 percentage points of the 3.1
percentage point decline). Medicaid expansions led to a 1 percentage point increase in coverage.
Changes in economic and demographic factors had little net effect. The number of people
uninsured could increase by 1.8 to 6 million in the next decade if real, per capita medical costs
increase at a rate 1 to 3 percentage points above the GDP growth rate.
Conclusions: Initiatives aimed at reducing the number of uninsured must confront the growing
pressure on coverage rates generated by rising costs. Policy has traditionally focused on the need
to limit the growth of costs, but this may not be desirable if medical cost increases are buying
3 valuable services. The design of health benefits, balancing valuable innovation against
expense, is thus a central policy concern.