A dynamic analysis of the demand for health insurance and health care

Abstract

We investigate the presence of moral hazard and advantageous or adverse selection in a market for supplementary health insurance. For this we specify and estimate dynamic models for health insurance decisions and health care utilization. Estimates of the health care utilization models indicate that moral hazard is not important. Furthermore, we find strong evidence for advantageous selection, largely driven by heterogeneity in education, income and health preferences.Finally, we show that ignoring dynamics and unobserved fixed effects changes the results dramatically.

The Effect of Health Insurance on the Substitution between Public and Private Hospital Care

“…This is supported by the high level of persistence found in insurance cover in the HILDA data and elsewhere (e.g. Bolhaar et al, 2012) and could be due to large transaction costs. 23 Since we are limited to four waves of data, this effectively means that in most (97 per cent of) cases, the identifying instruments for those with insurance are set at their initial or 2001 value.…”

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.…”

Family formation and the demand for health insurance

“…High-income women will be less responsive to the negative income effect from the presence of children. Finally, it is worth discussing state dependence, which has been found to affect demand in health insurance markets (e.g., Bolhaar et al, 2012;Handel, 2013). State dependence is easily incorporated into the above framework by assuming that individuals face transaction costs when switching into or out of insurance (this can be justified by, e.g., procrastination, hassle, and default bias).…”

“…We also follow Bolhaar et al (2012) and estimate linear fixed effects models as a sensitivity check. We deal with dependence between lagged PHI and the within mean of the random error term by using the Arellano and Bond (1991) GMM estimator.…”