The impact of risk preference on health insurance and health expenditures in the United States

The Affordable Care Act includes an individual mandate whereby persons are required to carry health insurance. This mandate will bring currently uninsured persons into the insurance pool. The uninsured are a heterogeneous group that includes persons with diverse risk preferences. It is important, therefore, to understand the role risk preference plays in (1) the likelihood of being uninsured and (2) the health care expenditures. Using the recently available data from the Medical Expenditure Panel Survey (MEPS), we analyse eight years of US data using multivariate regression and quantify the role of risk preference in insurance and expenditure equations. The results provide evidence that a person with high risk preference is less likely to hold health insurance, and spends less on healthcare even when controlling for insurance.