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Adverse Selection in the Private Health Insurance Markets: a Two-Step Approach

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  • Cinzia Di Novi

    (Dipartimento di Politiche Pubbliche e Scelte Collettive, Universita' del Piemonte Orientale - Alessandria, Italy)

Abstract

We use the 2003/2004 Medical Expenditure Panel Survey in conjunction with the 2002 National Health Interview Survey to test for adverse selection in the private U.S. health insurance markets. The key idea is to test whether individuals who are more exposed to health risks also buy insurance contracts with more coverage or higher expected payments. The critical statistical problem is that the extension of insurance is only measured for those who are insured and face positive health care expenditure, so there is a possible sample selection bias effect. The procedure used is based on a method suggested by Wooldridge (1995). The method also accounts for heterogeneity across individuals. The simultaneous account taken of both possible sources of bias is new for this kind of application.

Suggested Citation

  • Cinzia Di Novi, 2011. "Adverse Selection in the Private Health Insurance Markets: a Two-Step Approach," Rivista Internazionale di Scienze Sociali, Vita e Pensiero, Pubblicazioni dell'Universita' Cattolica del Sacro Cuore, vol. 119(2), pages 167-190.
    • Handle: RePEc:vep:journl:y:2011:v:119:i:2:p:167-190
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    More about this item

    Keywords

    adverse selection; health insurance; risk profile; two-step estimation; sample-selection bias;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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