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Risk Selection under Public Health Insurance with Opt‐Out

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  • Sebastian Panthöfer

Abstract

This paper examines risk selection in a parallel public and private health insurance system in which some, but not all, individuals can purchase substitutive private insurance by opting out of otherwise mandatory public insurance. Using a theoretical model, I show that public insurance is adversely selected when insurers and insureds are symmetrically informed about health-related risks, and that there can be any type of selection (advantageous or adverse) when insureds are privately informed. Using the German Socio-Economic Panel, I present evidence on the selection between public and private health insurance in Germany, which is one of the countries with such a health insurance system. I find that: (1) public insurance is adversely selected, (2) individuals adversely select public insurance based on self-assessed health and advantageously select public insurance based on risk aversion, and (3) there is evidence suggesting the presence of asymmetric information between private insurers and their clients.
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Suggested Citation

  • Sebastian Panthöfer, 2016. "Risk Selection under Public Health Insurance with Opt‐Out," Health Economics, John Wiley & Sons, Ltd., vol. 25(9), pages 1163-1181, September.
  • Handle: RePEc:wly:hlthec:v:25:y:2016:i:9:p:1163-1181
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    References listed on IDEAS

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    Cited by:

    1. Pilny, Adam & Wübker, Ansgar & Ziebarth, Nicolas R., 2017. "Introducing risk adjustment and free health plan choice in employer-based health insurance: Evidence from Germany," Journal of Health Economics, Elsevier, vol. 56(C), pages 330-351.

    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private

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