Distortion in Physician Service Market Induced by Fee-For-Service Health Insurance

Abstract

There have been findings that the Fee-For-Service Health Insurance increases the use of medical care by causing moral hazard on the part of subscribers. On the other hand, some argue that the increase in medical use is driven by not moral hazard but adverse selection. This paper uses the dynamic insurance status data of Korea Health Panel from 2008 to 2013 to verify the cause behind increased medical care consumption. Compared to existing subscribers, new subscribers use more healthcare service right after being insured. This increase in medical use that only appears in the first period of insurance represents the effect of adverse selection that changes over time. To build an efficient health care system, it is important to identify the exact source of the increased use of medical care caused by Fee-For-Service health insurance. This study provides implications for the development of the physician service market and the private health insurance industry, as well as government health policy in the long run.