No abstract

We use the 2004-'05 wave of the Australian National Health Survey to estimate the impact of private hospital insurance on the propensity for hospitalization as a private patient. We employ instrumental-variable methods to account for the endogeneity of supplementary private hospital insurance purchases. We calculate moral hazard based on a difference-of-means estimator. We decompose the moral hazard estimate into a diversion component that is due to an insurance-induced substitution away from public patient care towards private patient care, and an expansion component that measures a pure insurance-induced increase in the propensity to seek private patient care. We find some evidence of self-selection into insurance but this finding is not robust to alternative specifications. Our results suggest that on average, private hospital insurance causes a sizable and significant increase in the likelihood of hospital admission as a private patient. However, there is little evidence of moral hazard; the treatment effect of private hospital insurance on private patient care is driven almost entirely by the substitution away from public patient care towards private patient care.

The gross price elasticity of demand for medical care is decomposed into two separate "observable" components: the medical care gross price elasticity of insurance choice and the cost-sharing elasticity of medical care. When consumers alter their choice of health-care plans, the price elasticity of medical care is no longer equivalent to the cost-sharing elasticity; using the latter as a proxy for the former may produce misleading results. We present conditions under which the medical care price elasticity is "positive", the case of a quasi-Giffen good, and provide a theoretical foundation for extant empirical findings of a positive medical care price elasticity of "insurance" demand. Copyright (c) The Journal of Risk and Insurance, 2010.

No abstract

This paper derives a necessary and sufficient condition under which increased health care productivity must lead to decreased (increased) demand for health care as long as the demand for health care is inelastic (elastic). It is shown that this condition identifies a class of health production functions, which may provide useful guidance to empirical studies that depend wholly or partly on the correct specification of a health production function. As an illustration, it is demonstrated that this class of production functions may be useful for empirical studies that test the hypothesis that schooling, increasing the efficiency of health production, leads to a larger health output from a given set of health inputs. The paper also offers broader classes of production functions that would enable one to test this relationship between the demand elasticity and the effect of health care productivity on health care demand.