What Drives Differences in Health Care Demand? The Role of Health Insurance and Selection Bias
AbstractThis paper employs an econometric model to parse di erences in health care utilization attributable to private health insurance and differences due to self-selection into insurance status, with specifc interest in selection on unobservable traits such as insurance preference or attitude toward health risks. The model has two components, one component to model insurance outcome, the other to model demand for care measured as the annual number of doctor visits and prescriptions filled. Recognizing the endogeneity of health insurance, the model allows for correlated unobserved heterogeneity by assuming a latent factor structure. Values for these latent factors are drawn through simulation and the model is estimated using maximum simulated likelihood methods. For the observable characteristics that predict need for health services we find evidence of adverse selection. However, we also find evidence of advantageous selection on the unobservable characteristics common to insurance choice and utilization. In other words, unobserved heterogeneity that increases the chances of being uninsured isassociated with higher utilization. Given this selection decomposition, there is no inherent conflict in describing the influence of both adverse and advantageous selection in utilization comparisons. After controlling for selection, the insurance incentive effect (ex-post moral hazard) is positive and signifcant. For the average individual, switching from no coverage to full coverage would result in 2 additional visits to the doctor per year (+160%) and 8 additional prescriptions lled (+207%).
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Bibliographic InfoPaper provided by HEDG, c/o Department of Economics, University of York in its series Health, Econometrics and Data Group (HEDG) Working Papers with number 12/09.
Date of creation: Jun 2012
Date of revision:
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More information through EDIRC
Health care; Health insurance; Adverse selection; Treatment e ects model; Medical subsidy program;
Find related papers by JEL classification:
- I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
- H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-06-25 (All new papers)
- NEP-HEA-2012-06-25 (Health Economics)
- NEP-IAS-2012-06-25 (Insurance Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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