A Dynamic Model of Health Insurance Choices and Healthcare Consumption Decisions

Nitin Mehta (), Jian Ni (), Kannan Srinivasan () and Baohong Sun ()
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Nitin Mehta: Rotman School of Management, University of Toronto, Toronto, Ontario M5S 3E6, Canada
Jian Ni: Carey Business School, Johns Hopkins University, Baltimore, Maryland 21202
Kannan Srinivasan: Tepper School of Business, Carnegie Mellon University, Pittsburgh, Pennsylvania 15213
Baohong Sun: Cheung Kong Graduate School of Business, New York, New York 10022

Marketing Science, 2017, vol. 36, issue 3, 338-360

Abstract: Chronic diseases, which account for 75% of healthcare expenditure, are of particular importance in trying to understand the rapid growth of healthcare costs over the last few decades. Individuals suffering from chronic diseases can consume three types of services: secondary preventive care, which includes diagnostic tests; primary preventive care, which consists of drugs that help prevent the illness from getting worse; and curative care, which includes surgeries and expensive drugs that provide a quantum boost to the patient’s health. Although the majority of cases can be managed by preventive care, most consumers opt for more expensive curative care that leads to a substantial increase in overall costs. To examine these inefficiencies, we build a model of consumers’ annual medical insurance plan decisions and periodic consumption decisions and apply it to a panel data set. Our results indicate that there exists a sizable segment of consumers who purchase more comprehensive plans than needed because of high uncertainty vis-à-vis their health status, and that once in the plan, they opt for curative care even when their illness could be managed through preventive care. We examine how changing cost-sharing characteristics of insurance plans and providing more accurate information to consumers via secondary preventive care can reduce these inefficiencies.

Keywords: insurance choice; healthcare service; nested dynamic decisions; primary and secondary preventive care; curative care; informative effect; investment effect; dynamic programming (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormksc:v:36:y:2017:i:3:p:338-360

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