Utilization and Selection in an Ancillaries Health Insurance Market

Abstract

I study two important aspects of the Australian private ancillaries health insurance (PAHI) market-moral hazard and self-selection. PAHI covers out-of-hospital health services including dental, optometry, physiotherapy, and chiropractic. Using instrumental variables methods, I find evidence that PAHI increases utilization, particularly for dental, physiotherapy, chiropractic, osteopathy, and acupuncture. I also find evidence of selection effectsboth adverse and favorable. Several variables jointly predict a person's propensity to insure and to utilize health services. There is little evidence of self-selection based on the joint probability of different health services, which has important implications for understanding the commercial success of PAHI.Nathan Kettlewell is at the

The informational content of subjective expectations for health service use

“…age, education, sex, employment status, insurance status, risk preferences, household composition, self-assessed health and regional indicators (see Appendix Table A1 for a complete list of variables and definitions). Previous work has established that many of these controls predict hospitalizations [ 27 , 28 ] and ancillary health service utilization [ 29 ], particularly age, gender, income, health and insurance.…”

Subjective Expectations for Health Service Use and Consequences for Health Insurance Behavior

“…Previous work has established that many of these controls predict hospitalizations (see e.g. Buchmueller et al, 2013;Doiron & Kettlewell, 2018) and ancillary health service utilization (Kettlewell, 2019b), particularly age, gender, income, health and insurance.…”

UQ eSpace

“…PHI lowers the effective cost of allied health services and private hospital care, inducing individuals to consume more of these services (Doiron & Kettlewell 2018;Kettlewell 2018;Meng et al 2017;Savage & Wright 2003). This could improve health status, if the marginal effect of this care is positive.…”

“…Such services, since typically more discretionary than hospital procedures, may be associated with an even larger moral hazard effect. Kettlewell (2018) instrumented private ancillaries insurance with an indicator for whether an individual wore glasses or contact lenses. He found that PHI increased utilisation of dental, physiotherapy, osteopathy, chiropractic and acupuncture services, and weaker evidence for a positive effect on mental health and naturopathy services.…”

“…Both instruments may be correlated with an individual's own health status, and therefore are not suitable for this study. Kettlewell (2018) used wearing glasses or contact lenses as an instrument for private ancillaries insurance. While this is a convincing instrument for ancillaries insurance, information on an individual's use of glasses or contact lenses is not recorded in HILDA.…”