A net present value approach to health insurance choice

Raquel Fonseca and Luísa Cunha ()
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Luísa Cunha: Faculdade de Ciências da Universidade de Lisboa

Decisions in Economics and Finance, 2020, vol. 43, issue 2, No 16, 709-724

Abstract: Abstract In light of increasing health expenditure and following an economic crisis, the ADSE system (a health insurance system exclusive for the Portuguese civil servants) introduced a new policy where members were allowed to leave the system, and also for new employees to opt out. This decision, however, was permanent, and, as it will be shown, far from trivial. The aim of this study is to provide some indications on the total costs of both the ADSE and a private health insurance plan over the working life of an individual, taking into account certain life-changing events such as marriage and children. The choice is made based on the net present value of these total costs, and it is rational from a financial perspective. Because such a permanent decision is highly dependent on the assumptions made, a sensitivity analysis to certain variables, in particular, income, prices of medical treatments and frequency of use, is performed in order to discover the break-even point, that is, the value at which the individual would be indifferent between the two options.

Keywords: Health insurance; Net present value; Capital budgeting; Health economics (search for similar items in EconPapers)
JEL-codes: G11 G22 I11 I13 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s10203-020-00290-y

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