Price Elasticity and Adverse Selection in the Demand for Supplementary Health Insurance

M Susan Marquis and Charles E Phelps

Economic Inquiry, 1987, vol. 25, issue 2, 299-313

Abstract: Probit regression estimates show the effects of the price of insurance, anticipated medical expenditures, and other factors on reported decisions a bout purchasing hypothetically offered supplementary insurance polici es. The demand estimates can characterize how much supplemental insur ance would be purchased under different tax policies affecting health insurance purchases. Although eliminating the current tax subsidy to insurance is shown to decrease demand, the results indicate a substa ntial demand for supplementary insurance even in absence of present t ax incentives. However, the authors' results on adverse selection rai se concerns about the potential stability of supplemental insurance m arkets. Copyright 1987 by Oxford University Press.

Date: 1987
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