Moral Hazard Problems Under Public Health Insurance Evidence from Vietnam

Abstract

This paper investigates moral hazard problems. By using the matching estimator technique to estimate the effect of health care insurance on the demand for health care treatment, we find that the new health care policy enacted in 2005 is more likely to generate the effect of moral hazard on outpatient visits at state health care providers, but not on inpatient visits. In other words, we find strong evidence for the existence of moral hazard effect on outpatient visits at the state hospital system. Therefore, it is too risk bearing to manage health insurance funds at local or state levels if there are no appropriate policies to share the risk and prevent an overconsumption scenario because insured patients can take advantage of more medical services, which lead to a significant shortage of health insurance funds. The government should implement effective and efficient process management as well as impose an optimal deductible and copayment mechanism to solve critical issues of moral hazard. Additionally, to slower growth of health costs, the government should create public health services for home medical treatment to consult patients with minor ailments. This analysis is based on two large nationwide samples of Vietnamese Household Living Standard Surveys conducted in 2004 and 2006.