Working Paper: CEPR ID: DP5380
Authors: Lucien Gardiol; Pierreyves Geoffard; Chantal Grandchamp
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.
Keywords: Adverse Selection; Demand for Health Care; Full Maximum Likelihood Estimation; Health Insurance; Moral Hazard
JEL Codes: C51; D82; I11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Individuals who expect high health care costs (I11) | opt for more generous coverage (G52) |
| Decrease in copayment rate from 100% to 10% (H55) | increases marginal demand for health care (I11) |
| Decrease in copayment rate from 100% to 0% (H55) | increases marginal demand for health care (I11) |
| Insurance coverage (G52) | health care expenditures (H51) |
| Selection effects (C52) | correlation between insurance coverage and health care expenditures (H51) |
| Incentive effects (H31) | correlation between insurance coverage and health care expenditures (H51) |