The effect of health insurance on hospitalization: Identification of adverse selection, moral hazard and the vulnerable population in the Indian healthcare market

Reshmi Sengupta and Debasis Rooj ()

World Development, 2019, vol. 122, issue C, 110-129

Abstract: The Indian healthcare sector is growing at a rapid pace; nevertheless, inequality in healthcare consumption and catastrophic healthcare expenditure is also increasing at an alarming rate. In addition to socioeconomic differences, poor healthcare infrastructure, and inadequate risk-pooling mechanisms; asymmetric information in the healthcare market is also a potential contributor to this inequity and increasing costs. The consequences of information asymmetry are adverse selection (AS) and moral hazard (MH). AS occurs if people with health risks (high-risk individuals) are more prone to buying health insurance as compared to low-risk individuals. MH occurs when insured individuals are more likely to use healthcare than the uninsured individuals, inflating insurance premiums and medical care costs. Empirically, AS and MH lead to endogeneity due to unobserved heterogeneity. In practice, endogeneity is often addressed by using the instrumental variable estimation technique; however, this approach suffers from identification problems. Therefore, in this paper, we use an instrument-free semi-parametric copula regression technique to examine how health insurance status affects hospitalization using a sample of individuals from a large nationally representative survey for India. Our results suggest the presence of AS and potential MH in the Indian healthcare market. We observe that chronically ill individuals are probable sources of AS, which leads to possible MH. A spline regression analysis suggests nonlinearity in health insurance choice and healthcare utilization across age, education, family size, and household consumption expenditure. We find chronically ill women in India exhibit less insurance coverage and lower hospital care usage. We also identify the vulnerable groups, such as older adults and rural residents, who have low insurance participation and high healthcare consumption. Our results indicate toward the need for evidence-based health care policy to manage the healthcare system and support the disadvantaged population of India.

Keywords: Adverse selection; Copula regression; Endogeneity; Health insurance; Hospitalization; Moral hazard (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0305750X19301263
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:wdevel:v:122:y:2019:i:c:p:110-129

DOI: 10.1016/j.worlddev.2019.05.012

Access Statistics for this article

World Development is currently edited by O. T. Coomes

More articles in World Development from Elsevier
Bibliographic data for series maintained by Catherine Liu ().