The effect of insurance coverage on healthcare expenditures

With the implementation of the Affordable Healthcare Act, the number of insured individuals in the United States will significantly increase. Using person level data from the 2010 and 2011 Medical Expenditure Panel Survey, I examine how the extent and type of insurance coverage affects total healthcare expenditure. Specifically, I estimate both year specific cross-section models and an individual level OLS change model of total healthcare expenditure as a function of individual socio-demographics, health status, and indicators of partial or full year coverage under the major public US insurance programs or under private insurance. The year specific models indicate a positive effect on total healthcare expenditure for all insurance types, of which Medicare and Medicaid  have the highest impact. Individuals insured under Medicare or Medicaid have annual healthcare expenditures that are roughly $3700 higher than those who are insured for only some or none of the year, controlling for income, age, and health status, while the presence of full year private insurance associates with a considerably smaller $1500 expenditure increase.  When I control for unobserved heterogeneity through a change model, I find more evidence for the theory of moral hazard through expenditure effects of $2161 upon gaining and -$2237 upon losing Medicaid coverage. However, the results from the change model also show a decrease in healthcare expenditure from multiple year insurance coverage.  Individuals who have Medicare or Medicaid insurance for both 2010 and 2011 experience  a change in healthcare expenditure over the period that is $1032 and $1002 lower, respectively, than those without continuous coverage, suggesting potential health benefits from sustained insurance coverage.