The Effect Of Supplemental Insurance On Health Care Demand With Multiple Information: A Latent Class Analysis

Valentino Dardanoni () and Paolo Li Donni ()

Health, Econometrics and Data Group (HEDG) Working Papers from HEDG, c/o Department of Economics, University of York

Abstract: The Medicare program, which provides insurance coverage to the elderly in the United States, does not protect them fully against high out-of-pocket costs. For this reason private supplementary insurance, named Medigap, has been available to cover Medicare gaps. This paper studies how Medigap affects the utilization of health care services. The decision to take out supplemental insurance is likely to be infuenced by unobservable attributes such as actual risk type and insurance preferences. Empirical appraisals to this problem typically rely on the recursive bivariate probit. We exploit the Health and Retirement Study data and some recent advances on latent class analysis to jointly model the insurance and health care decisions. Results show the presence of unobserved `types' representing different preferences and risk levels. We compare our results to those obtained by the probit and the bivariate probit and find the residual effect of insurance on health care not significant.

Keywords: Health Care Demand; Latent Class Models; Health Insurance; Asymmetric Information; Medigap. (search for similar items in EconPapers)
JEL-codes: C52 D82 G22 I10 (search for similar items in EconPapers)
Date: 2009-03
New Economics Papers: this item is included in nep-hea and nep-ias
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Citations: View citations in EconPapers (3)

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