Determinants of Health Care Decisions: Insurance, Utilization, and Expenditures

This paper studies three interrelated health care decisions: insurance, utilization, and expenditures. The model treats insurance as an endogenous variable with respect to both utilization and expenditures, addresses potential selection issues, and takes into account that the decisions to use health care and the level of treatment are determined by different decision makers. We employ semiparametric methods to avoid making distributional assumptions. Using the Medical Expenditure Panel Survey 2005 data, the semiparametric approach predicts insurance to increase the level of expenditures by 48%, a number in accord with an important experimental study and less than half that obtained using parametric methods.