Healthy, wealthy and insured? The role of self‐assessed health in the demand for private health insurance

Abstract

Both adverse selection and moral hazard models predict a positive relationship between risk and insurance; yet the most common finding in empirical studies of insurance is that of a negative correlation. In this paper, we investigate the relationship between ex ante risk and private health insurance using Australian data. The institutional features of the Australian system make the effects of asymmetric information more readily identifiable than in most other countries. We find a strong positive association between self-assessed health and private health cover. By applying the Lokshin and Ravallion (J. Econ. Behav. Organ 2005; 56:141-172) technique we identify the factors responsible for this result and recover the conventional negative relationship predicted by adverse selection when using more objective indicators of health. Our results also provide support for the hypothesis that self-assessed health captures individual traits not necessarily related to risk of health expenditures, in particular, attitudes towards risk. Specifically, we find that those persons who engage in risk-taking behaviours are simultaneously less likely to be in good health and less likely to buy insurance.

Sources of advantageous selection: Evidence using actual health expenditure risk

“…Recent studies include: Finkelstein and McGarry (2006) which provides evidence of advantageous selection in the market for long-term care insurance among elderly population in the US; Fang, Keane and Silverman (2008) which provides evidence of advantageous selection in the US Medigap market for individuals aged 65 and over; Doiron et al (2008) and Buchmueller et al (2008) which find advantageous selection in the market for duplicate private health insurance in Australia; Bolhaar, Lindeboom and Klaauw (2012) which provide similar evidence for Ireland; and Lee (2012) which concludes that insurers in South Korea price discriminate to induce advantageous selection. As a measure of individual health expenditure risk, these studies rely on proxies of health status, such as a self-assessed health rating available in many surveys, predicted health expenditure from a secondary data source, or the unexplained variation in individual's demand for health services.…”

Community Rating, Entry-Age Rating and Adverse Selection in Private Health Insurance in Australia

“…Therefore, to obtain an unbiased estimate of the effect of LHC, it is necessary to hold constant changes in M d . This can be done by decomposing the 23 Barrett and Conlon (2003); Hindle and McAuley (2004); Ellis and Savage (2005); Doiron et al (2008). 24 As noted above, since the mid-1990s there has been an increase in private insurance coverage for the ''gap'' between the total fee charged by medical specialists and the Medicare scheduled fee.…”

Private Health Insurance and Hospitalization Under Japanese National Health Insurance

“…The relationship between coverage and health investment is negative. In other words, the insured household will have less incentive to keep oneself healthy, take fewer precautious, or invest less in health or preventive measures [20]. A household's behavior is a reflection of moral hazard [21].…”

“…In this study, labor income, wealth, and sociodemographic factors are included as an explanatory variable [14,20]. The three situations observed are as follows: (a) not purchasing health insurance policies and then being hospitalized, (b) purchasing health insurance policies then not being hospitalized, and (c) purchasing health insurance policies and then being hospitalized.…”

“…For issues of adverse selection, worse health, which is signified by age, results in adverse selection against the public health insurance program in Chile [15]; health risk is positively associated with private health insurance among low and middle income people [4]; individuals with chronic condition are willing to pay more for a good, reliable, and understandable health plans that may effectively reduce the problem of adverse selection in the Netherlands [19]; and there is a positive relationship between self-assessed health, private health insurance coverage, and a negative relationship predicted by adverse selection by using objective indicators of health in Australia [20]. For moral hazards, Sapelli and Vial (2003) state a negligible case of hospitalization in moral hazard, but they highlight a quantitatively important moral hazard for medical visits in Chile [21].…”