Private health insurance and utilization of health services in Chile

This paper analyses the choice of private health insurance in Chile and how this relates to the utilization of health services. The results show the importance of some demographics on the insurance decision, particularly age, gender and marital status. Socio-economic factors such as education, income, employment status and zone of residence, all influence the probability of purchasing private insurance. The relevance of these determinants is confirmed using a simulation analysis with four representative decision-makers. This simulation also provides evidence of a positive selection into private insurance, although this would be driven by the different criteria used to set premiums under private and public insurance schemes. The potential linkage between utilization of health services and private health insurance is examined using a simultaneous two-equation framework. Two measures of utilization are estimated: outpatient health services, and length of stay in hospital. A number of explanatory variables, selected on the basis of previous findings, were used to estimate these two dependent variables, and self-assessed health status and long-term activity limitations emerge as important factors in explaining utilization. Private health insurance cover positively affects only one of the two measures of utilization: outpatient health services. This provides evidence of the moral hazard effect pointed out earlier by Arrow (1963).