A behavioral decomposition of willingness to pay for health insurance

Abstract

Despite widespread exposure to substantial medical expenditure risk in low-income populations, health insurance enrollment is typically low. This is puzzling from the perspective of expected utility theory. To help explain it, this paper introduces a decomposition of the stated willingness to pay (WTP) for insurance into its fair price and three behavioral deviations from that price due to risk perception and risk attitude consistent with prospect theory, plus a residual. To apply this approach, we elicit WTP, subjective distributions of medical expenditures and risk attitude (utility curvature and probability weighting) from Filipino households in a nationwide survey. We find that the mean stated WTP of the uninsured is less than both the actuarially fair price and the subsidized price at which public insurance is offered. This is not explained by downwardly biased beliefs: both the mean and the median subjective expectation are greater than the subsidized price. Convex utility in the domain of losses pushes mean WTP below the fair price and the subsidized price, and the transformation of probabilities into decision weights depresses the mean further, at least using one of two specific decompositions. WTP is reduced further by factors other than risk perception and attitude.

Willingness to pay for a hypothetical HIV/AIDS insurance in Iran

“…In line with the literature [34][35][36], the findings show that the demand for insurance is higher among low-risk individuals, and they can be considered as potential customers for HHAI. In the growing market of insurance industry in Iran, new types of insurances policies are introduced every year.…”

Оценка Модели Экономического Поведения Населения При Потреблении Опекаемых Благ, С Учетом Неоднородности Предпочтений

“…В исследовании Байона было обнаружено, что среднезаявленная «готовность платить» у незастрахованных индивидов меньше как в актуарно справедливой цене, так и в субсидируемой цене в государственном страховании. Готовность платить снижается не только из-за фактора восприятия риска и отношения к нему, но еще сильнее снижается под действием других факторов (Baillon et al, 2022). С помощью American Life Panel обнаружены эмпирические данные, подтверждающие теорию перспектив, индивиды не склонные к потерям проявляют слабый интерес к страхованию, так как рассматривают страхование как «рисковую инвестицию», которая может привести к потере страховой премии в случае невозникновения страхового случая .…”

Do time preferences explain low health insurance take‐up?

“…Inverse S-shaped probability weighting can then result in the overweighting of both unusually large losses and unusually small ones. Willingness to pay for insurance then depends on the precise shape of both the distribution of losses and the weighting function (Baillon et al, 2022b). 5 See Jaspersen et al (2022) for alternatives.…”