Does the Subsidy of Dental Care Lead to Overtreatment?

Abstract

We examine the prevalence of moral hazard on the Swedish dental market. Dentists can use their information advantage to induce demand but are constrained by patients’ ability to pay, suggesting that subsidies facilitate inducement. Furthermore, patients’ demand for dental care may increase under extensive subsidy following from decreased costs. In collaboration with dentists at TLV, we define a patient group that has the same dental need for two treatments, information and treatment of periodontal disease, but differ in subsidy level (50/85 percent) to analyze the relationship between subsidy level and treatment intensity. We use data for 83 geographical regions for the years 2010-2012, and control for differences in socioeconomic and dental market specifics in the analysis. The results suggest that heavily subsidized patients are about 40 percent more intensively treated than less subsidized patients; either due to overtreatment of heavily subsidized patients or undertreatment of less subsidized patients. We argue that it is most likely due to overtreatment, emanating from demand inducement and moral hazard.