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Testing for adverse selection into private medical insurance

Author

Listed:
  • Pau Olivella

    (Institute for Fiscal Studies)

  • Marcos Vera-Hernandez

    () (Institute for Fiscal Studies and University College London)

Abstract

We develop a test for adverse selection and use it to examine private health insurance markets. In contrast to earlier papers that consider a purely private system or a system in which private insurance supplements a public system, we focus our attention on a system where privately funded health care is substitutive of the publicly funded one. Using a model of competition among insurers, we generate predictions about the correlation between risk and the probability of taking private insurance under both symmetric information and adverse selection. These predictions constitute the basis for our adverse selection test. The theoretical model is also useful to conclude that the setting that we focus on is especially attractive to test for adverse selection. Using the British Household Panel Survey, we find evidence that adverse selection is present in this market.

Suggested Citation

  • Pau Olivella & Marcos Vera-Hernandez, 2006. "Testing for adverse selection into private medical insurance," IFS Working Papers W06/02, Institute for Fiscal Studies.
  • Handle: RePEc:ifs:ifsewp:06/02
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    References listed on IDEAS

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    Cited by:

    1. Sokolovska Olena, 2017. "Trade Credit Insurance and Asymmetric Information Problem," Scientific Annals of Economics and Business, De Gruyter Open, vol. 64(1), pages 123-137, March.
    2. Sokolovska, Olena, 2016. "Trade credit insurance: theoretical background and some international practices," MPRA Paper 74303, University Library of Munich, Germany, revised Aug 2016.
    3. Barros, Pedro Pita & Machado, Matilde P. & Sanz-de-Galdeano, Anna, 2008. "Moral hazard and the demand for health services: A matching estimator approach," Journal of Health Economics, Elsevier, vol. 27(4), pages 1006-1025, July.
    4. Kiil, Astrid, 2012. "What characterises the privately insured in universal health care systems? A review of the empirical evidence," Health Policy, Elsevier, vol. 106(1), pages 60-75.
    5. Karlsson, Martin & Klohn, Florian & Rickayzen, Ben, 2012. "Are the dimensions of private information more multiple than expected? Information asymmetries in the market of supplementary private health insurance in England," Darmstadt Discussion Papers in Economics 213, Darmstadt University of Technology, Department of Law and Economics.
    6. Kiil, Astrid, 2012. "Private health insurance and the use of health care services - a review of the theoretical literature with application to voluntary private health insurance in universal health care systems," COHERE Working Paper 2012:1, University of Southern Denmark, COHERE - Centre of Health Economics Research.

    More about this item

    Keywords

    Contract theory; Testing; Health Insurance;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • I19 - Health, Education, and Welfare - - Health - - - Other
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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