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A net present value approach to health insurance choice

Author

Listed:
  • Raquel J. Fonseca

    (Faculdade de Ciências da Universidade de Lisboa)

  • Luísa Cunha

    (Faculdade de Ciências da Universidade de Lisboa)

Abstract

In light of increasing health expenditure and following an economic crisis, the ADSE system (a health insurance system exclusive for the Portuguese civil servants) introduced a new policy where members were allowed to leave the system, and also for new employees to opt out. This decision, however, was permanent, and, as it will be shown, far from trivial. The aim of this study is to provide some indications on the total costs of both the ADSE and a private health insurance plan over the working life of an individual, taking into account certain life-changing events such as marriage and children. The choice is made based on the net present value of these total costs, and it is rational from a financial perspective. Because such a permanent decision is highly dependent on the assumptions made, a sensitivity analysis to certain variables, in particular, income, prices of medical treatments and frequency of use, is performed in order to discover the break-even point, that is, the value at which the individual would be indifferent between the two options.

Suggested Citation

  • Raquel J. Fonseca & Luísa Cunha, 2020. "A net present value approach to health insurance choice," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 43(2), pages 709-724, December.
    • Handle: RePEc:spr:decfin:v:43:y:2020:i:2:d:10.1007_s10203-020-00290-y
    DOI: 10.1007/s10203-020-00290-y
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    Cited by:

    1. Raquel J. Fonseca & Luísa Cunha, 2023. "Real options in health insurance decisions: the Portuguese ADSE system," SN Business & Economics, Springer, vol. 3(6), pages 1-17, June.

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    Keywords

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    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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