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Risk selection under public health insurance with opt-out

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  • Panthöfer, S.

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.

Suggested Citation

  • Panthöfer, S., 2015. "Risk selection under public health insurance with opt-out," Health, Econometrics and Data Group (HEDG) Working Papers 15/15, HEDG, c/o Department of Economics, University of York.
  • Handle: RePEc:yor:hectdg:15/15
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    More about this item

    Keywords

    public and private health insurance; risk selection; asymmetric information;
    All these keywords.

    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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