Citation

Discussion Paper Details

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Title: Separating Selection and Incentive Effects in Health Insurance

Author(s): Lucien Gardiol, Pierre-Yves Geoffard and Chantal Grandchamp

Publication Date: November 2005

Keyword(s): adverse selection, demand for health care, full maximum likelihood estimation, health insurance and moral hazard

Programme Area(s): Public Economics

Abstract: This paper provides an analysis of the health insurance and health care consumption. A structural microeconomic model of joint demand for health insurance and health care is developed and estimated using full maximum likelihood method using Swiss insurance claims data for over 60,000 adult individuals. The estimation strategy relies on the institutional features of the Swiss system, in which each individual chooses among the same menu of contracts, ranked by the size of their deductible. The empirical analysis shows strong and robust evidence of selection effects. Nevertheless, once selection effects are controlled for, an important incentive effect ('ex-post moral hazard') remains. A decrease in the co-payment rate from 100% to 10% increases the marginal demand for health care by about 90% and from 100% to 0% by about 150%. The correlation between insurance coverage and health care expenditures may be decomposed into the two effects: 75% may be attributed to selection, and 25 % to incentive effects.

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Bibliographic Reference

Gardiol, L, Geoffard, P and Grandchamp, C. 2005. 'Separating Selection and Incentive Effects in Health Insurance'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=5380