Economics
College of Humanities and Social Sciences

Empirical Studies of Emergency Response Services (9-1-1) and an Examination of Moral Hazard in Health Insurance

David Chandler Thomas

Major Professor: Thomas Stratmann, PhD, Department of Economics

Committee Members: Alexander Tabarrok, Garett Jones

Carow Hall, Conference Room
April 21, 2015, 02:00 PM to 10:00 AM

Abstract:

The United States officially launched a universal emergency number (9-1-1) beginning in the early 1970s, followed by each state, county, or police department adding various technical capabilities after they became available. Improvements included capturing the caller’s phone number and address, automating the dispatching of emergency services personnel and providing support for wireless phones. The benefits of these services have been assumed for decades with only anecdotal data making the case. The first chapter of this paper estimates the impact of rapid reporting and response times on the lethality rate of aggravated assaults (homicides) in an effort to provide empirical support for the supposition. In other words, the availability of the 9-1-1 service, rapid response times of emergency medical technicians (EMTs), and improvements in trauma centers, should have resulted in higher survival rates of aggravated assault victims. The study concludes that much of the decline in homicide rates over the past few decades is the result of improvements in emergency services. The second chapter considers the effect of emergency services on the reporting of crime. Many crimes are very costly (i.e. aggravated assaults and vehicle thefts) and should be written up in a police report with or without a call to the 9-1-1 services. In contrast, some lesser crimes (i.e. petty thefts and shop lifting) might go unreported without the 9-1-1 services to reduce the cost of reporting. This study estimates changes in crime reporting resulting from the availability and improvements of emergency services.

The final chapter examines the role of moral hazard and subsidy effects in the U.S. third-party health insurance system. Having third-party payers (insurance companies) be responsible for reimbursing both insurable events and routine care while both the insurance premiums and medical payments are largely subsidized by employers and government, makes isolating moral hazard effects from subsidy effects very challenging. The two classes of economic effects are very different. The subsidy of a product or service tends to result in higher levels of consumption of that service, while moral hazard effects are changes in behavior resulting from insurance against risk. The combination of subsidized health insurance premiums and subsidized routine care results in a bizarre combination of over-consumption and risky behavior often mislabeled by economists. This chapter seeks to clarify the various ways in which subsidy and moral hazard effects alter the behavior of consumers, physicians, employers, and insurance companies in the complex third-party payer system.

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