Willingness‐to‐pay for parallel private health insurance: evidence from a laboratory experiment

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Debate over the effects of public versus private health care financing has been, and continues to be, active in both academic outlets and policy circles. Theoretical literature on parallel health care financing is often built on untested behavioural assumptions and the empirical evidence generally depends upon the institutional details of the specific health care systems under analysis. This paper contributes to the literature on parallel health care finance by developing and executing a revealed preference laboratory experiment based on the theoretical model of parallel health care finance in Cuff et al. (2008). The theoretical model involves individuals with varying severities of illness who demand health care from a limited supply of health care resources. Health care resources are purchased by the public sector and rationed free of charge to individuals, or purchased by individuals through a private insurance market. The general theoretical model is converted into a discrete experimental representation of a large-scale economy where individuals are price takers, the probability of receiving public health care is exogenous and the willingness-to-pay (WTP) for private health insurance is elicited from subjects. The experimental design includes two within-subject factors based on the theoretical model: the public sector rationing rule (rationing based on need or severity versus rationing based on a random allocation) and the probability of being publicly treated (high versus low). The experimental design also includes two between-subjects treatments based on the frame of the experiment (neutral frame versus health frame) and on the distribution of private health insurance prices (high prices versus low prices). The results show the public system's allocation rule and the probability of receiving health care from the public system both significantly affect an individual's WTP for private health insurance in the predicted direction, although the WTP values tend to be above the actual theoretical predictions. When the public system allocates health care based on need, the average WTP is lower than under random allocation. A higher probability of receiving health care from the public system elicits a lower WTP regardless of how the public system allocates health care. It is also found that when the public system allocates health care based on need, the WTPs are significantly higher under a neutral frame than a health frame. Terms of use: Documents in

An experimental investigation of mixed systems of public and private health care finance

“…The smaller-than-expected difference between needs-based and random allocation presents a policy challenge. Both observational studies (e.g., Besley et al 1999; Jofre-Bonet 2000; Johar 2011) and the experimental study of Buckley et al (2012) indicate that demand for supplemental private insurance responds to access barriers in the public system, whether measured by wait lists, wait times, or the probability of a long wait. Conditional on a given wait time, demand for such private insurance should be less in a well-functioning system that prioritizes patients by need and treats them accordingly.…”

“…Unlike the experimental environment presented here, in which the decisions of many subjects interact to determine the insurance market outcome, Hennig-Schmidt et al (2011),Schram and Sonnemans (2011) andBuckley et al (2012) investigate health models using incentivized single-subject preference elicitation experiments with no interaction between subjects. Hennig-Schmidt et al (2011) investigate alternative physician remuneration schemes, Schram and Sonnemans (2011) study factors that influence insurance plan switching and Buckley et al (2012) study the effect of public system performance and whether the decision is framed in neutral or health terms on an isolated individual's WTP for insurance Fan et al (1998).…”

“…Buckley et al (2012) elicited WTP in a setting where the probability of public treatment was fixed but calibrated their behavioural findings to predict the general equilibrium effect of an allocation rule change. They found a calibrated allocation rule effect of 71% of the theoretical prediction, suggesting individuals with full information have lower than predicted WTPs.…”

The Political Economics of Social Health Insurance: The Tricky Case of Individuals’ Preferences

“…Buckley et al 2012). Aspects of public choice or regarding attitudes towards special setups of social health insurance are usually only covered indirectly when the role of informal institutions, beliefs or values such as solidarity and altruism are investigated.…”

Behavioral insurance: Theory and experiments

“…Schoemaker and Kunreuther 1979;Hershey and Schoemaker 1980;Kusev et al 2009). While there also is some evidence to the contrary (Wakker et al 1997), the findings seem to be especially robust in settings which closely resemble real-world insurance markets (see Hershey and Schoemaker 1980 for a general result and Buckley et al 2012 for an application to health insurance). Einav et al (2012) further confirm this hypothesis using field data on people's choices of different insurance policies and their investment decisions in 401(k) plans.…”