Separating Selection and Incentive Effects in Health Insurance

Pierre Geoffard, Lucien Gardiol and Chantal Grandchamp

No 5380, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper provides an analysis of the health insurance and health care consumption. A structural microeconomic model of joint demand for health insurance and health care is developed and estimated using full maximum likelihood method using Swiss insurance claims data for over 60,000 adult individuals. The estimation strategy relies on the institutional features of the Swiss system, in which each individual chooses among the same menu of contracts, ranked by the size of their deductible. The empirical analysis shows strong and robust evidence of selection effects. Nevertheless, once selection effects are controlled for, an important incentive effect ('ex-post moral hazard') remains. A decrease in the co-payment rate from 100% to 10% increases the marginal demand for health care by about 90% and from 100% to 0% by about 150%. The correlation between insurance coverage and health care expenditures may be decomposed into the two effects: 75% may be attributed to selection, and 25 % to incentive effects.

Keywords: Health insurance; Demand for health care; Moral hazard; Adverse selection; Full maximum likelihood estimation (search for similar items in EconPapers)
JEL-codes: C51 D82 I11 (search for similar items in EconPapers)
Date: 2005-11
New Economics Papers: this item is included in nep-hea and nep-ias
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

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Related works:
Working Paper: Separating selection and incentive effects in health insurance (2005)
Working Paper: Separating selection and incentive effects in health insurance (2005)
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