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J Health Econ. 1991;10(4):433-59.

Adverse selection, moral hazard, and wealth effects in the Medigap insurance market.

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  • 1Department of Economics, Michigan State University, East Lansing 48824.


Using data from a longitudinal study of the recently retired we attempt to separate the moral hazard effect of Medicare supplementary (Medigap) insurance on health care expenditures from the adverse selection effect of poor health on Medigap coverage. We find evidence of adverse selection, but its magnitude is unlikely to create serious efficiency problems. Taking adverse selection into account reduces the estimate of the moral hazard effect. In addition, we find a strong positive wealth effect on the demand for supplementary insurance.

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