Health insurance, risk attitudes, and household financial behavior

Abstract

Medical expenditure risk is widely believed to reduce households' willingness to bear other risks and in turn alter their behavior. In this paper, we investigate the role of health insurance in household financial decision. To this end, we consider a double-multinomial discrete-factor model of insurance choice and portfolio allocation. Using data from a Chinese household survey, we find that enrolling in a health insurance scheme with better policies is associated with a higher probability of owning risky assets. This positive effect is stronger for households with lower risk aversion. Our findings suggest that risk attitudes could indirectly influence portfolio outcomes through affecting households' responsiveness to changes in medical expenditure risk. K E Y W O R D Shealth insurance, medical expenditure risk, portfolio choice, risk attitudes | INTRODUCTIONA widely accepted view in the literature is that exposure to background risk will reduce an individual's tolerance of other risks (Gollier & Pratt, 1996;Kimball, 1993;Pratt & Zeckhauser, 1987). During the past few decades, the dramatic increase in healthcare cost has led medical expenditure to become an important component of background risk in China. According to Li et al. (2012), 13.0% of households in China face catastrophic out-of-pocket payments from health expenditure, and 7.5% of them are even impoverished by unaffordable medical expenses. As these numbers are expected to grow in the future, one of the key issues drawing extensive attention is how medical expenditure risk affects the willingness of households to invest in risky assets.Since medical expenditure risk is a compound risk related to both health risk and out-of-pocket payment, one strand of the literature has examined the effect of health risk on portfolio choices. Using health status as an indicator for health risk, it has been found that risky health is associated with a larger share of financial wealth allocated to safer assets, especially for the elderly (

Reassessing the demand for community-based health insurance in rural Senegal: Geographic distance and awareness

“…Dercon et al (2019) showed that, surprisingly, risk aversion may be negatively associated with health insurance demand in settings where trust in insurance schemes is limited (due to misperceptions of product attributes). Li et al (2021) investigated the influence of households' stated risk preferences on their health insurance enrollment and portfolio allocation decisions in China, showing that the lower the insured households’ risk aversion, the greater their probability of owning risky assets. However, they did not find this risk substitution between medical expenditure risk and financial risk for households with high risk aversion.…”

Private Health Insurance and Financial Risk Taking in Spain—The Moderating Effect of Subjective Risk Tolerance

“…It is possible that the discrepancies observed are due to the failure to consider coverage through PHI. In this sense, the only studies that have considered this aspect are Goldman and Maestas [ 2 ], Christellis et al [ 7 ], and Li et al [ 6 ]. Goldman and Maestas [ 2 ], in the USA, found that individuals who face lower medical expenditure risk, as measured by their enrolment in a Medicare Health Maintenance Organization (HMO) or an employer supplemental insurance policy, are more likely to hold risky financial assets.…”

“…Therefore, PHI is not only a protection mechanism for health, but also for family finance [ 5 ]. In the same vein, Li et al [ 6 ] assert that medical expenditure risk is widely believed to reduce the willingness of households to bear other risks and, in turn, could alter their behaviour. In this sense, the security offered by PHI can lead to risky financial decisions that potentially offer better returns, and that such protection facilitates the availability of resources for riskier financial investments.…”

“…The first focuses on analysing the effect of PHI on household financial risk taking in Spain, a country with a NHS, in which—unlike the USA for example—the entire population has public health coverage. So far, the only studies that have analysed the relationship between private health insurance and portfolio risk refer to the USA [ 2 , 7 ] and China [ 6 ]. In this sense, Spain is a good laboratory since it has public health coverage that could eliminate the effect of PHI on risk taking.…”

The neighborhood effects on the online financial investment of rural households: Evidence from China

“…However, underdeveloped nancial markets and insu cient nancial instruments can weaken this mechanism (Rejeb&Boughrara, 2013) [9] . In contrast, scal policies and social security impact more residents' participation in the nancial market (Li et al, 2021) [10] . Furthermore, how developed the nancial market is playing a role in promoting residents' participation in nancial markets (Smimou, 2014) [11] .Recently, online nancial products have drawn attention from scholars.…”