Publicly-provided Health Insurance and Ex Ante Moral Hazard: The Case of Medicaid Expansions for Pregnant Women

Many studies including those focused on the Medicaid expansions of the 1980s and 1990s have documented a positive association between health insurance and medical care use (ex post moral hazard).  In contrast, there are few studies of whether health insurance is associated with changes in health behavior even though economic theory predicts that insurance can reduce healthy behaviors (ex ante moral hazard).  No previous study has evaluated the ex ante moral hazard effects of public insurance among pregnant women.  Understanding these effects is important given their implications for affecting maternal and infant health and given the scheduled Medicaid expansions under the Affordable Care Act.  We exploit plausibly exogenous variation from the Medicaid income eligibility expansions for pregnant women and for children that occurred during late-1980s through mid-1990s in order to assess whether these expansions were associated with changes in prenatal health behaviors, including smoking, alcohol use, and weight gain during pregnancy, based on data from the U.S. vital statistics birth records. 

Preliminary findings indicate that increases in Medicaid eligibility were significantly associated with increases in smoking and drinking and decreases in weight gain during pregnancy.  Raising Medicaid eligibility by 10 percentage-points (the approximate increase in eligibility that occurred over the expansion period) increased rates of any prenatal smoking and smoking more than five cigarettes daily by about 1 percentage point (4-6% relative to the 1989 mean), and the daily number of cigarettes consumed by 6% among low-educated mothers.  The expansion was associated with a reduction in pregnancy weight-gain by about 1.4%. Over the range of the eligibility expansions over the sample period, we also find a small associated increase in prenatal drinking.  Estimates suggest significant non-linear effects of Medicaid eligibility, such that the adverse effects on healthy behaviors diminish at higher levels of eligibility, which is consistent with the crowd-out literature showing that greater Medicaid eligibility expansions reflected a shift from private to public insurance.  We do not find any evidence that these effects are counteracted or mediated by insurance-induced expansion in prenatal care and physician contact. These results highlight the importance of providing incentives to maintain prevention efforts when designing public insurance program expansions in order to reduce the unintended ex-ante moral hazard effects.