Medical Bill Shock and Imperfect Moral Hazard

TL;DR

This paper investigates how delays in medical billing information influence household spending behavior, revealing that bill arrival significantly alters subsequent healthcare spending and that correcting misperceptions can reduce costs.

Contribution

It introduces a model of healthcare demand accounting for delayed pricing information and quantifies the impact of correcting misperceptions on reducing healthcare expenditure.

Findings

Households increase spending by 22% after scheduled care.

Spending decreases by 11% after bills arrive.

Correcting misperceptions reduces median spending by 7% annually.

Abstract

Consumers are sensitive to medical prices when consuming care, but delays in price information may distort moral hazard. We study how medical bills affect household spillover spending following utilization, leveraging variation in insurer claim processing times. Households increase spending by 22\% after a scheduled service, but then reduce spending by 11\% after the bill arrives. Observed bill effects are consistent with resolving price uncertainty; bill effects are strongest when pricing information is particularly salient. A model of demand for healthcare with delayed pricing information suggests households misperceive pricing signals prior to bills, and that correcting these perceptions reduce average (median) spending by 16\% (7\%) annually.