NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Insurance and the Utilization of Medical Services

Jonathan Meer, Harvey S. Rosen

NBER Working Paper No. 9812
Issued in July 2003
NBER Program(s):   HE   PE

Most data sets indicate a positive correlation between having health insurance and utilizing health care services. Yet the direction of causality is not at all clear. If we ob-serve a positive correlation between the utilization of health care services and insurance status, we do not know if this is because people who anticipate poor health buy more in-surance (or take jobs with generous medical coverage), or because insurance lowers the cost of health care, increasing the quantity demanded. While a few attempts have been made to implement an instrumental variables (IV) strategy to deal with endogeneity, the instruments chosen have not been entirely convinc-ing. In this paper we revisit the IV estimation of the reduced form relationships between insurance and health care utilization taking advantage of what we argue is a good instru-ment - the individual's self-employment status. Our main finding is that a positive and statistically significant effect of insurance continues to obtain even after instrumenting. Indeed, instrumental variables estimates of the impact of insurance on utilization of a variety of health care services are larger than their non-instrumented counterparts. The validity of this exercise depends on the extent to which self-employment status is a suitable instrument. To argue this case, we analyze panel data on transitions from wage-earning into self-employment and show that individuals who select into self-employment do not differ systematically from those who remain wage-earners with re-spect to either the utilization of health care or health status. While this finding does not prove that self-employment status is an appropriate instrument, it is encouraging that there appear to be no underlying differences that might lead to self-employment per se affecting health services utilization.

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Document Object Identifier (DOI): 10.3386/w9812

Published: Meer, Jonathan and Harvey S. Rosen. "Insurance and the Utilization of Medical Services." Social Science & Medicine 58, 9 (May 2004): 1623-1632. citation courtesy of

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