Description:

Anran Li (Northwestern University): Limited Commitment and Preventive Care Provision

Abstract: This paper analyzes the effects of limited commitment on preventive care provision in health insurance. Limited consumer commitment generates dynamic inefficiencies and discourages insurers to provide preventive care because the returns of current health investment may not be recovered in future periods as consumers leave the insurer. I exploit a shift-share instrument for consumer turnover and find that a 10% increase in turnover decrease preventive utilization rates by 6%, and insurers’ preventive investment by $53 per enrollee. I develop a model of dynamic insurer competition on preventive care quality and premiums to quantify the welfare impacts of limited consumer commitment and evaluate the tradeoff between market power and investment cost savings from competition. A 10% increase in consumer turnover increase $116 total discounted consumer out of pocket expenses. A single payer increases total discounted consumer welfare by $740 and decreases $630 total discounted OOP compared to the status quo.