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Advantageous Selection in the Private Hospital Insurance Market in Europe: Evidence on the Role of Education and Cognitive Ability

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Abstract

I use microdata from the Survey of Health, Ageing and Retirement in Europe to study whether the cost of acquiring health information is an important determinant of the decision to buy private hospital health insurance for individuals aged 50+, in eight European countries. I first test whether, conditional on health insurance companies' risk assessments, individuals have residual private information on insurance determinants other than their risk type. My results show that there are individual characteristics, not observed by the insurers, that are positively correlated with hospital insurance coverage and negatively correlated with the ex post probability of requiring hospital treatment. However, this opposite association is significantly different from zero only in countries with low quality healthcare systems. I then provide evidence that education and cognitive ability act as substitutes for quality of health promotion in determining the propensity to take out a voluntary private hospital insurance.

Suggested Citation

  • Ciro Avitabile, 2009. "Advantageous Selection in the Private Hospital Insurance Market in Europe: Evidence on the Role of Education and Cognitive Ability," CSEF Working Papers 221, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 09 Feb 2010.
  • Handle: RePEc:sef:csefwp:221
    Note: A former version of this paper was circulated under the title “The Health Insurance Puzzle in Europe: The Role of Information”
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    Keywords

    Health Insurance; Cognitive Ability; Healthcare Quality;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets

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