Testing for adverse selection into private medical insurance (original) (raw)
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Testing for Asymmetric Information in Private Health Insurance *
The Economic Journal, 2013
We develop a test for adverse selection and use it to examine private health insurance markets. In contrast to earlier papers that consider a purely private system or a system in which private insurance supplements a public system, we focus our attention on a system where privately funded health care is substitutive of the publicly funded one. Using a model of competition among insurers, we generate predictions about the correlation between risk and the probability of taking private insurance under both symmetric information and adverse selection. These predictions constitute the basis for our adverse selection test. The theoretical model is also useful to conclude that the setting that we focus on is especially attractive to test for adverse selection. Using the British Household Panel Survey, we find evidence that adverse selection is present in this market. * We are grateful for useful comments from
Prices Matter: Comparing Two Tests of Adverse Selection in Health Insurance
2012
A standard test for adverse selection in health insurance examines whether people with characteristics predicting high health care utilization are more likely to buy insurance (or buy more generous insurance). George Akerlof's theory of adverse selection suggests a test based on prices: those who purchase insurance at the regular price will have higher expected utilization than those buying insurance when offered a deeply discounted price. Both tests provide (different) lower bounds on self-selection. We use a randomly allocated coupon for deeply discounted health insurance in rural Cambodia coupled with a longitudinal survey to test for adverse selection. While the standard test can show only a small amount of self-selection, the Prices test shows vastly more self-selection-providing a much more informative lower bound.
An Examination of Adverse Selection in the Public Provision of Insurance
The Geneva Risk and Insurance Review, 2013
Using a unique data set from Florida's residual property insurer, we test for adverse selection in the public provision of homeowners' insurance in Florida. We find a significant relationship between the losses and deductible choices of insureds in Florida's residual homeowners' insurance market. This relationship provides strong evidence of the existence of an adverse selection problem in Florida's residual property insurance market. While this relationship is important to Florida regulators (and taxpayers) specifically, a finding of an adverse selection problem in residual markets in general has implications more broadly for government providers of insurance as an adverse selection problem in these settings will impact the public policy debates and decisions involving these markets.
The Australian health system is characterised by a mix of public and private service and private health insurance is used in addition to a compulsory universal public insurance to finance health services. A series of reforms have been implemented over the years in order to expand the private sector with the objective to relieve the overburdened public health care system. While private coverage has expanded, a large proportion of the privately insured still opt for public treatment in hospitals. The objective of this paper is to investigate the determinants of individuals' choice between public and private hospital services, in particular, the impact of private health insurance status. It estimates a recursive trivariate probit system model with partial observability that allows for endogeneity of private insurance participation and potential selection bias as we only observe individuals' public/private choices for those who have visited a hospital in the past 12 months. Relative to the prevailing two-step estimation for sample selection or endogenous treatment, our full information maximum likelihood (FIML) approach is both consistent and efficient. The study identifies private health insurance status and income as important determinants of private hospital care utilisation. An individual with a private hospital cover has nearly 70 per cent higher chance to opt for private treatment in a hospital and a person within the tenth income decile group has 46 per cent higher probability to seek private hospital care than someone who falls in the third or lower income decile groups. To some extent other factors such as perceived quality of care in the public sector and cost of access are also found to have some impact on the use of private hospital care.
Premium subsidies for health insurance: excessive coverage vs. adverse selection
Journal of Health Economics, 1999
The tax subsidy for employment-related health insurance can lead to excessive coverage and excessive spending on medical care. Yet, the potential also exists for adverse selection to result in the opposite problem-insufficient coverage and underconsumption of medical Ž. care. This paper uses the model of Rothschild and Stiglitz R-S to show that a simple linear premium subsidy can correct market failure due to adverse selection. The optimal linear subsidy balances welfare losses from excessive coverage against welfare gains from reduced adverse selection. Indeed, a capped premium subsidy may mitigate adverse selection without creating incentives for excessive coverage. Published by Elsevier Science B.V.
Who Took out Additional Supplementary Health Insurance? A dynamic Analysis of Adverse-Selection
I n s t i t u t e f o r R e s e a r c h a n d I n f o r m a t i o n i n H e a l t h E c o n o m i c s no 150-January 2010 According to economic theory, individuals choose their insurance cover levels in virtue of anticipated health expenditures. Thus, they partially reveal their health risks. Yet, on the French health insurance market this hypothesis, known as 'adverse-selection', has only been tested on the supplementary health insurance purchase decision. However, the supplementary health insurance market is extremely heterogeneous, at least in the same way as beneficiaries' health risk levels. Between July 1st 2003 and December 31st 2006, a mutual insurance fund for state employees (Mutuelle générale de l'équipement et des territoires) offered existing holders of its supplementary cover ('MGET basic') an additional health coverage ('MGET+'). This particular context, where individuals covered from the same supplementary health insurance decide to pu...
Impact of private health insurance on the choice of public versus private hospital services
Health, Econometrics and Data Group (HEDG) …, 2008
The Australian health system is characterised by a mix of public and private service and private health insurance is used in addition to a compulsory universal public insurance to finance health services. A series of reforms have been implemented over the years in order to expand the private sector with the objective to relieve the overburdened public health care system. While private coverage has expanded, a large proportion of the privately insured still opt for public treatment in hospitals. The objective of this paper is to investigate the determinants of individuals' choice between public and private hospital services, in particular, the impact of private health insurance status. It estimates a recursive trivariate probit system model with partial observability that allows for endogeneity of private insurance participation and potential selection bias as we only observe individuals' public/private choices for those who have visited a hospital in the past 12 months. Relative to the prevailing two-step estimation for sample selection or endogenous treatment, our full information maximum likelihood (FIML) approach is both consistent and efficient. The study identifies private health insurance status and income as important determinants of private hospital care utilisation. An individual with a private hospital cover has nearly 70 per cent higher chance to opt for private treatment in a hospital and a person within the tenth income decile group has 46 per cent higher probability to seek private hospital care than someone who falls in the third or lower income decile groups. To some extent other factors such as perceived quality of care in the public sector and cost of access are also found to have some impact on the use of private hospital care.
Adverse Selection and the Decline in Private Health Insurance Coverage in Australia: 1989-95
Economic Record, 2003
The decline in private health insurance coverage over the period 1989-1995 is analysed using the ABS National Health Surveys. Individual's health status and health risk behaviours are found to be significant determinants of their decision to purchase private health insurance. At a point in time, the pool of the insured is very heterogeneous, with a mix of both good and bad health risks. It is found that the decline in insurance coverage over the period 1989-95 coincided with an increase in the degree of 'adverse selection' within the insured population.