^aDepartment of Economics and Related Studies, University of York, Heslington, York YO10 5DD, UK. E-mail: aes118@gmail.com

Abstract

There is extensive debate in the literature about the practical significance of ex ante moral hazard in health insurance markets. This paper uses data from the U.S. Panel Study of Income Dynamics (1999–2003) to estimate a structural model of individual choice of insurance coverage and four lifestyle decisions: heavy smoking, heavy drinking, lack of exercise and obesity. The results show that health insurance has significant incentive effects on lifestyle choices, increasing the propensity to heavy smoking, lack of exercise and obesity and decreasing the propensity to heavy drinking. There is also significant correlation between the errors of each equation. The results might have implications for the design of health financing policies.