We introduce a new experimental approach to measuring the effects of health insurance policy alternatives on behavior and health outcomes over the life course. Cash-motivated subjects are placed in a virtual environment where they earn income and allocate it across multi-period lives. We compare behavior across age, income and insurance plans—one priced according to an individual’s expected cost and the other uniformly priced through employer-implemented cost sharing. We find that 1) subject behavior approximated optimal responses; 2) in all treatments, subjects under-invested in health early in life and over-invested in health late in life; 3) subjects in the employer-implemented plan purchased insurance at higher rates; 4) the employer-based plan reduced differences due to income and age; 5) subjects in the actuarial plan engaged in more health-promoting behaviors, but still below optimal levels, and did save at the level required, so did realize the full benefits of the plan. Contrary, to model predictions, the actuarial priced insurance plan did not increase utility relative to the employer-based plan. Subjects had more difficulty optimizing choices in the Actuarial treatment’s more dynamic and more complicated decision space.
Tracy, J.D., Kaplan, H., James, K.A., and Rassenti, S.J. (2019). An experimental investigation of income, insurance, and investments in health over the life course. ESI Working Paper 19-16. Retrieved from https://digitalcommons.chapman.edu/esi_working_papers/274/