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Health Insurance and Health Behavior

By December 31, 2012Commentary

Health advocates have been very focused on preventing discrimination in insurance rates related to health status, which is reflected in the reform law.  But the insistence that health status or health behaviors cannot be used to set rates or other terms of coverage, along with wage nondiscrimination provisions in the disability discrimination laws, may have the effect of encouraging individuals to lead less healthy lives, since there are fewer consequences for doing so.  A new paper from the National Bureau of Economics examines the overall likely effects from implementation of these anti-discrimination provisions.   (NBER Paper)   The paper used data from the Panel Study of Income Dynamics to build a model to examine the impact, individually and together, of several health and wage non-discrimination policies.  The analysis suggests that while each policy, if implemented in isolation, protects individuals from income loss and from a societal perspective, preserves overall spending; but when implemented jointly, there is a net negative impact that results from individuals losing incentives to be healthy and being protected from the consequences of unhealthy behavior.  This likely also leads to more spending on health care by society.  One provision of the reform law, the one which allows firms to penalize/incent employees for wellness behaviors, may ameliorate some of the effects in the private, employment-based health plan market.  But that does nothing to help in the Medicaid and Medicare markets, which account for the bulk of health spending and where individuals can behave as irresponsibly as they want with no impact on their health costs.

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