Original document was submitted as an honors thesis requirement. Copyright is held by the author.

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This study aims to examine the effect of insurance coverage on medical expenditure in the United States. The data was gathered from the Household Component Medical Expenditure Panel Survey and is a cross-sectional data set with a sample size of approximately 1500 observations. The study also distinguishes between public and private insurance coverage to compare the potential moral hazard in the two separate markets. The results of this study suggest that insurance status, specifically public, has a strong positive effect on healthcare expenditure. This result, combined with a negative relationship between household income and healthcare expenditure, suggests that the source of financial funds rather than the ability to pay determines the demand for healthcare services. The study indicates that individuals are very sensitive to the financial incentives provided by public insurance and inefficiencies within the public insurance market should be examined by future research.